CostaExchange Limited v Shephard
[2010] FMCA 804
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| COSTAEXCHANGE LIMITED & ORS v SHEPHARD | [2010] FMCA 804 |
| BANKRUPTCY – Creditor’s petition – costs in protracted litigation with debtor – debtor’s evidence did not show ability to pay debt – sequestration order made. |
| Bankruptcy Act 1966 (Cth), ss.40(1)(g), 41(7), 52(1), 52(3), 52(2)(a), 52(2)(b), 58(1), 153A Evidence Act 1995 (Cth), s.79 Federal Court Rules (Cth), O.7 r.1(3) |
| De Robillard v Carver (2007) 159 FCR 38, [2007] FCAFC 73 EyKamp v Deputy Commissioner of Taxation [2010] FCA 797 Foyster v Australian & New Zealand Banking Group Ltd [2000] FCA 1254 Shephard v Costa Exchange Ltd & Ors [2010] FMCA 314 Totev v Sfar [2006] FCA 470, (2006) 230 ALR 23 |
| First Applicant: | COSTAEXCHANGE LIMITED ACN 002 687 961 |
| Second Applicant: | ANTHONY GEOFFREY HARTNELL |
| Third Applicant: | GARY WILLIAM WRIGHT |
| Fourth Applicant: | DAVID ANTHONY BARDON |
| Fifth Applicant: | PETER WOODS |
| Sixth Applicant: | RIDLEY BELL |
| Seventh Applicant: | MICHAEL TAMANI |
| Eighth Applicant: | SCOTT ROLAND WOLGAMOT |
| Ninth Applicant: | PETER JOHN MCPHERSON |
| Respondent: | DEREK GEORGE SHEPHARD |
| File Number: | SYG1333 of 2010 |
| Judgment of: | Smith FM |
| Hearing date: | 12 October 2010 |
| Delivered at: | Sydney |
| Delivered on: | 12 October 2010 |
REPRESENTATION
| Counsel for the Applicant: | Mr A Leopold SC and Mr J S Tobin |
| Solicitors for the Applicant: | Watson Mangioni Lawyers Pty Limited |
| Counsel for the Respondent: | Respondent in person |
ORDERS
A sequestration order be made against the estate of Derek George Shephard.
All proceedings under the sequestration order are stayed under s.52(3) of the Bankruptcy Act 1966 (Cth) for 21 days, on the condition that Mr Shephard before 5pm today shall pay the amount of $19,000 into the trustee’s bank account designated in Exhibit B in today’s proceedings, those funds to be administered as property vesting pursuant to s.58(1) of the Act.
The applicant creditor’s costs, including all reserved costs, be taxed and paid from the estate of the respondent debtor in accordance with the Bankruptcy Act 1966 (Cth).
Note that the date of the act of bankruptcy is 26 May 2010.
Note that a consent to act as trustee has been signed by Phillip Kenneth Aggs.
The applicant must give a copy of this order to the Official Receiver within 2 working days.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SYG1333 of 2010
| COSTAEXCHANGE LIMITED ACN 002 687 961 (FORMERLY CHIQUITA BRANDS SOUTH PACIFIC LIMITED) |
First Applicant
| ANTHONY GEOFFREY HARTNELL |
Second Applicant
| GARY WILLIAM WRIGHT |
Third Applicant
| DAVID ANTHONY BARDON |
Fourth Applicant
| PETER WOODS |
Fifth Applicant
| RIDLEY BELL |
Sixth Applicant
| MICHAEL TAMANI |
Seventh Applicant
| SCOTT ROLAND WOLGAMOT |
Eighth Applicant
| PETER JOHN MCPHERSON |
Ninth Applicant
And
| DEREK GEORGE SHEPHARD |
Respondent
REASONS FOR JUDGMENT
(revised from transcript)
This judgment gives my reasons for making a sequestration order against Mr Shephard.
The petitioning creditors have been engaged in litigation with Mr Shephard in relation to a blueberry venture in the Coffs Harbour region for some years. The background to the litigation was referred to by Driver FM in Shephard v Costa Exchange Ltd & Ors [2010] FMCA 314, and it is unnecessary for me to recount it again.
Ultimately, Mr Shephard’s last effort to litigate his claims against the creditors failed in proceedings in the Supreme Court of NSW before Macready AsJ, in which his Honour ordered Mr Shephard to pay the costs of those proceedings. The order was made on 18 June 2009.
The creditors’ costs were assessed and registered in the Local Court, and the judgment of the Local Court was entered on 2 December 2009 in the amount of $48,797.98.
A bankruptcy notice demanding payment of that amount was served on Mr Shephard, and he applied to set it aside before the expiry of the time for payment. It was that application which was addressed by Driver FM. As his Honour noted at paragraph 1 of his judgment, the provisions of s.41(7) of the Bankruptcy Act 1966 (Cth) had the effect of extending time for compliance with the bankruptcy notice until the date of his Honour’s order, which was 26 May 2010.
I am now satisfied that an act of bankruptcy occurred on that day by reason of Mr Shephard’s failure to pay the amount demanded or reach arrangements with his creditors before the dismissal of his application by Driver FM.
The creditors now seek a sequestration order against Mr Shephard based upon non‑payment of the same debt. The existence of the debt and its non‑payment has been established to my satisfaction by the affidavits verifying the petition. I note that Mr Shephard, today, has tendered the amount of $20,000 in cash towards payment of the debt, but that tender was not accepted by the creditors.
I am satisfied as to all the other matters required by the Bankruptcy Act and the Bankruptcy Rules and Regulations to establish a right to a sequestration order under s.52(1) of the Bankruptcy Act. Prima facie, therefore, the creditors have a right to a sequestration order, subject to grounds of opposition being established by Mr Shephard.
Mr Shephard has filed a notice of grounds of opposition which contains the following three grounds:
1.No documents in the matter have been served on the opponent.
2.The opponent has assets sufficient to meet the demands.
3.The opponent is a nett creditor of the applicants and needs more time to prepare documents.
In relation to the first ground, there is a dispute whether the petition and the supporting documents were personally served on Mr Shephard. The process server’s affidavit deposes to an encounter with Mr Shephard on a property at Sapphire Beach, and it might be open to the construction that the documents were not physically given to Mr Shephard. However, on the evidence before me I am satisfied that ultimately Mr Shephard did receive the relevant petition documents, and has had reasonable opportunity to read and understand the case of the creditors before today’s hearing.
He has also filed an appearance in the matter on 21 September 2010, and attended, at his request by telephone, at a listing of the petition before Registrar Hannigan on 24 September 2010. Directions were then given for the further filing of evidence in the matter, and Mr Shephard has today attended in Court personally to present his opposition.
In my opinion, even assuming that there was some irregularity in relation to service of the petition documents, Mr Shephard is deemed to have been duly served by reason of the operation of the Federal Court Rules, O.7 r.1(3) (see De Robillard v Carver (2007) 159 FCR 38, [2007] FCAFC 73 at [81]‑[86]).
I therefore do not consider that Ground 1 provides a good answer to the making of a sequestration order today.
In support of Ground 2, Mr Shephard has made assertions in affidavits and tendered some documents, by which he attempts to establish that he has a beneficial interest in the property at Sapphire Beach which he is residing in, exceeding the value of the current debt.
Objection was taken to his assertions in the affidavits, and in particular to the valuation opinions of himself and of a real estate agent. The valuation appears to have been prepared for stamp duty purposes, and is signed by a certified valuer on 4 May 2006, assessing a “current fair market value of the unencumbered fee simple of the property” as at 23 September 2005 at $225,000. The creditors’ submissions about the admissibility of the valuation may have some substance by reference to authorities under s.79 of the Evidence Act.
However, in my opinion there are clearer or more understandable reasons why the valuation and Mr Shephard’s other documents do not persuade me that he is able to pay this debt so as to give rise to a good ground of opposition under s.52(2)(a) of the Bankruptcy Act.
First, there are difficulties in relation to the timing of the valuation.
I would not be able to assume that the property has the same current value, particularly since Mr Shephard has conceded that the house in which he is residing is in a dilapidated condition and has asbestos problems.
Secondly, there is difficulty in being satisfied that Mr Shephard has, in fact, the whole beneficial ownership of the property, or even substantial beneficial interests in the property. The most recent certificate of title issued on 3 January 2006 shows Mr Shephard’s former wife and her mother with legal title in the property as follows:
YVETTE SHEPHARD
BARBARA JUNE BOWLER
AS JOINT TENANTS
OF A 3 / 4 SHARE
YVETTE JENNIFER SHEPHARD
IN 1 / 3 SHARE
BARBARA JUNE BOWLER
IN 2 / 3 SHARE
AS TENANTS IN COMMON
OF A 1 / 4 SHARE
Mr Shephard claims to have acquired all, or some, of the interests of his wife, Mrs Yvette Shephard, by reason of an unregistered transfer, dated 23 September 2005. In this she purports to acknowledge receipt of a consideration of $200,000 by Mrs Shephard, but does not indicate which of her interests shown in the title that relates to, nor how she claims to have acquired them at that date.
Mr Shephard asserts that Mrs Shephard acquired by inheritance all the interests of her mother, Mrs Bowler, and that these have also passed to him under the transfer. However, a transmission application lodged by a solicitor for Mrs Bowler for registration in the name of Mrs Bowler of interests arising from the death of her husband is dated 23 December 2005, after the purported transfer by Mrs Shephard. This suggests that Mrs Bowler was still alive at that date, and that Mrs Shephard has ineffectively transferred any interest that she had not yet acquired from her mother. On the fragments of evidence before me, the current beneficial title in the Sapphire Beach property remains highly obscure, and I can make no findings as to Mr Shephard’s interest in the property he currently resides in.
Mr Shephard faces a further difficulty, even if I make assumptions as to the truth of his claims that he is the sole beneficial owner of the property, that his title is unencumbered, and that the asset is wholly available to be applied to discharge his indebtedness to all his creditors. The mere possession of an asset which is valued in an amount exceeding the amount of the debt relied upon in the petition, is insufficient to establish the ground provided under s.52(2)(a). This requires the Court to be satisfied by the debtor “that he or she is able to pay his or her debts”. As interpreted in well established authority, including Foyster v Australian & New Zealand Banking Group Ltd [2000] FCA 1254, this requires the debtor to satisfy the Court that the asset pointed to can be realised “within a reasonably short period” of time or “in the reasonably near future”, or at least “within a realistic time frame” (see EyKamp v Deputy Commissioner of Taxation [2010] FCA 797 at [7]).
On the evidence before me, I cannot be satisfied that there is any prospect of the realisation of the interest claimed by Mr Shephard in the property at Sapphire Beach within that time scale. He gave no evidence, and made no suggestion to the Court, that he had set in train any process for the sale of the property, or for its use as security to raise funds to pay this creditor. The evidence suggesting its dilapidated condition and Mr Shephard’s obscure title, give rise to concerns as to the likelihood of a sale being made and completed within a reasonably short time. There is no evidence as to the current state of the relevant market for the property.
For all the above reasons, I am not satisfied that Ground 2 in the notice of opposition has been made out on the evidence presented by Mr Shephard to the Court.
Ground 3 of the notice of opposition is obscure. An affidavit by Mr Shephard makes general assertions in highly inadmissible terms about the creditors and Mr Shephard’s past disputes with them. However, these disputes have been fully addressed in the previous litigation history narrated by Driver FM. Moreover, Driver FM was not satisfied for the purposes of s.40(1)(g) of the Bankruptcy Act that Mr Shephard had a “genuine claim” against the creditors for the purposes of setting aside the bankruptcy notice. This applied a lower test than the tests which the Court applies when deciding whether claims against the creditor provide “other sufficient cause” for declining to make a sequestration order under s.52(2)(b). These require the Court to be satisfied that claims are likely to succeed and are well advanced in pending litigation (see the authorities cited and discussed by Allsop J in Totev v Sfar [2006] FCA 470, (2006) 230 ALR 23). The evidence presented by Mr Shephard in relation to his asserted claims against the creditors is very far from satisfying either of these tests.
Taking into account all the material filed by Mr Shephard and his evidence to me today, I am not satisfied that he has made out any ground for resisting the making of a sequestration order today, and I am satisfied that it is appropriate to make that order.
I raised with both parties a stay of the operation of a sequestration order under s.52(3) of the Bankruptcy Act, which empowers the Court to give such a stay for 21 days but no longer. In view of Mr Shephard’s apparently belated recognition that he will have to pay this debt, and his raising of a fund of cash partly going towards that objective, there may be a possibility that he could escape from his bankruptcy without large expenses of administration being incurred. If he can achieve accommodation with his creditors in a short period, then with the assistance of his trustee, the bankruptcy will be able to be annulled under s.153A of the Bankruptcy Act.
To encourage Mr Shephard to explore that possibility with his trustee and creditors, it is in my opinion appropriate to stay the operation of the sequestration order for 21 days, so as to minimise administration costs during that period. I do accept, however, the submission of the creditors, that I should impose a condition requiring payment of most of the cash raised by Mr Shephard to his trustee within a short period.
I certify that the preceding twenty‑seven (27) paragraphs are a true copy of the reasons for judgment of Smith FM
Associate:
Date: 27 October 2010
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