Crane Services Pty Ltd v Hillam
[2024] FedCFamC2G 265
•22 March 2024
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 2)
Crane Services Pty Ltd v Hillam [2024] FedCFamC2G 265
File number(s): ADG 269 of 2023 Judgment of: JUDGE BROWN Date of judgment: 22 March 2024 Catchwords: BANKRUPTCY – Application for review of a sequestration order made by a registrar – sequestration order sought on the basis of unsatisfied judgment debts – where the debtor asserts there is sufficient cause for the sequestration order to not be made – whether the debtor has shown he has the ability to pay his debts as they fall due – act of bankruptcy – hearing de novo – application dismissed Legislation: Bankruptcy Law 1966 (Cth) ss 40, 41, 43, 47, 52, 54
Federal Circuit & Family Court of Australia Act 2021 (Cth) s 254, 256
Federal Circuit & Family Court of Australia (Division 2) (Bankruptcy) Rules 2021 r 2.02
Federal Circuit & Family Court of Australia (Division 2) (General Federal Law) Rules 2021 Div 6.4, r 21.04
Cases cited: Deputy Commissioner of Taxation v Bayeh (1999) 100 FCR 144
Glew v Harrowell, in the matter of Glew [2003] FCA 373
Guss v Johnstone (2000) 171 ALR 598
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 666
Totev v Sfar [2008] FCAFC 35
Division: Division 2 General Federal Law Number of paragraphs: 128 Date of hearing: 15 March 2024 Place: Adelaide Solicitor for the Applicant: Ms Scott of Marshalls Solicitors The Respondent: Appeared in person by telephone Solicitor for the Interested Person: Mr Sankey of Wallmans Lawyers Counsel for the Supporting Creditor: Mr Edmonds-Wilson KC Solicitor for the Supporting Creditor: WBH Legal ORDERS
ADG 269 of 2023 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 2)
IN THE MATTER OF JOHN HILLAM, BANKRUPT
BETWEEN: CRANE SERVICES PTY LTD
Applicant Petitioning Creditor
AND: JOHN HILLAM
Respondent Debtor
ORDER MADE BY:
JUDGE BROWN
DATE OF ORDER:
22 MARCH 2024
THE COURT ORDERS THAT:
1.The application for review of the Registrar’s decision filed on 15 December 2023 be dismissed.
2.The orders of Registrar Parkyn of 15 December 2023 are affirmed.
3.The respondent Debtor is to pay the costs of the applicant Petitioning Creditor incurred in these proceedings as agreed or taxed, to be paid out of the estate of Mr Hillam.
4.The respondent Debtor is to pay the costs of the Interested Person, Thomas Stuart Otway and the supporting creditor, WBH Legal incurred in the review proceedings as agreed or taxed, to be paid out of the estate of Mr Hillam.
THE COURT NOTES THAT:
A.These Orders have been amended pursuant to rule 17.05(2)(h) of the Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021.
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).
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 2)
Crane Services Pty Ltd v Hillam [2024] FedCFamC2G 265
CORRIGENDUM
JUDGE BROWN:
On page 22, paragraph 127 of the Reasons for Judgment insert the following: ‘and the supporting creditor’ after the words ‘of Mr Otway’.
I certify that the preceding one (1) numbered paragraph are a true copy of the Corrigendum to the Reasons for Judgment herein of Judge Brown. Associate:
Dated: 22 March 2024
REASONS FOR JUDGMENT
JUDGE BROWN:
INTRODUCTION
This is an application for review, brought by John Hillam[1] of a decision of a Registrar of this Court made on 15 December 2023, to sequestrate his estate. Mr Hillam seeks the discharge of the sequestration order.
[1] Hereinafter referred to as “Mr Hillam” or “the Bankrupt”.
The petitioning creditor, supported by another creditor of Mr Hillam, seeks the dismissal of the review application. The trustee appointed to administer Mr Hillam’s estate has provided a lengthy affidavit detailing the inquiries made by him so far.
The trustee is concerned that Mr Hillam has not filed a statement of his affairs and has not provided details requested of him regarding his assets, including details of significant debts said to be owed by him. The provisional view of the trustee is there is no evidence to support Mr Hillam’s current assertion that he is solvent or, in lay terms, able to pay his debts as they fall due.
BACKGROUND
The Petitioning Creditor is Crane Services Pty Ltd[2] which obtained a judgment debt against Mr Hillam, in the Magistrates Court (Civil Division) of South Australia, in an amount of $47,111.68, on 23 May 2023.
[2] Hereinafter referred to as “the Petitioning Creditor” or “Crane Services”.
Thereafter, a Bankruptcy Notice was issued by the official receiver, on 25 May 2023, which was not satisfied by Mr Hillam. The resulting bankruptcy petition was filed by Crane Services on 5 September 2023 and first listed for hearing, before the Registrar on 31 October 2023.
On 21 September 2023, WBH Legal[3] indicated its intention to appear in the proceedings as a supporting creditor of Crane Services. Essentially, it was and remains WBH Legal’s position that, if for any reason, Crane Service does not proceed with its petition, it be substituted as the petitioning creditor of Mr Hillam.
[3] Hereinafter referred to as “the Supporting Creditor” or “WBH Legal”.
Mr Hillam formally appeared in the proceedings on 30 October 2023, filing his Notice of Appearance after business hours on that date. Concurrently with his Notice of Appearance, he filed an affidavit on his behalf.
This affidavit was not filed with a formal application, but in the affidavit Mr Hillam indicated that he sought the dismissal of Crane Services’ petition and any associated application made by WBH Legal, on the basis that he had applied to the Adelaide Magistrates Court, on 16 August 2023, to set aside the judgment made in favour of Crane Services Pty Ltd and the court had reserved its decision, in respect of his application.
Essentially, it was and remains Mr Hillam’s position that he had a valid and un-concluded application to set aside the judgment debt, which was the basis of the petition and therefore it was not the case that he had committed any necessary act of bankruptcy to justify any sequestration order being made.
On 5 December 2023, Commercial Legal Solutions Pty Ltd also filed a notice in which it indicated its intention to appear in the relevant proceedings, as a further supporting creditor, of Crane Services. The firm claimed to be owed the sum of $31,331.87 by Mr Hillam.
These proceedings are governed by the provisions of the Bankruptcy Act 1966 (Cth).[4] Section 49 of the Act grants the court a discretion to change the identity of any petitioning creditor, in sequestration proceedings before it, if satisfied that any relevant petition is not being prosecuted with due diligence or whether there is any other reason which renders it proper to do so.
[4] Hereinafter referred to as “the Act”.
On 7 December 2023, Ms Armanini, a solicitor, filed an affidavit on support of WBH Legal, in which she indicated that WBH Legal had obtained a judgment debt against Mr Hillam, in the Supreme Court of South Australia in an amount of $136,896.17 together with interest calculated in an amount of $25,091.34.
The date of the judgment debt was 3 April 2023 and the order for interest was made on 30 May 2023. Mr Hillam was also ordered to pay WBH Legal’s costs in what was described as a standard cost basis.
In her affidavit, Ms Armanini deposed that these judgments had not been subject to appeal and had remained unsatisfied. As a consequence, WBH Legal obtained a bankruptcy notice which was issued by the official receiver on 1 August 2023, requiring payment of an amount of $161,987.51 otherwise bankruptcy proceedings would be instituted. Ms Armanini further deposed that this bankruptcy notice was unsatisfied.
On 28 August 2023, Mr Hillam applied, in this court, to set aside WBH Legal’s bankruptcy notice. This application was heard and determined by Registrar Morgan, in the court’s Sydney Registry on 26 October 2023 and was dismissed. Registrar Morgan made a further order that Mr Hillam pay WBH Legal’s costs of this application in an amount of $14,024.00 on 2 November 2023.
On 8 December 2023, Lynch Meyer Lawyers filed a Notice of Appearance, in which it was indicated that they were a further supporting creditor, in the proceedings. This firm has not taken any part in these proceedings and has not sought to be heard. Mr Hillam claims that its debt will be satisfied on or before 23 March 2024 and is for an amount of $2,000.00.
On 31 October 2023, Registrar Colbran dispensed with the formal requirements that Mr Hillam be personally served with the petition. The further hearing of the petition was adjourned until 12 December 2023.
On 8 December 2023, Mr Hillam filed a further affidavit in which deposed that he had applied, in the Sydney Registry of this court, to review the decision of Registrar Morgan relating to the bankruptcy notice issued on behalf of WBH Legal. He further deposed that it was his understanding that this was listed before Judge Mansouridis on 2 February 2024.
In addition, Mr Hillam deposed that he had an ongoing cross-application, against WBH Legal, in the Supreme Court of South Australia, which Judge Dart had adjourned until 30 January 2024.
Against this background, on 15 December 2023, Registrar Parkyn made the relevant sequestration order and fixed Crane Services’ costs in an amount of $8,200.00. The cost of WBH Legal was to be paid out of Mr Hillam’s estate, with Commercial Legal Solutions and Lynch Meyer Lawyers given liberty to apply in they sought to be heard in relation to costs. Mr Otway[5] consented to act as Mr Hillam’s Trustee.
[5] Hereinafter referred to as “the Trustee”.
The relevant application for review, of this decision, was filed on 15 December 2023. It is in the public interest that issues regarding personal insolvency be determined as quickly as possible. For that reason, the application for review was made returnable on 15 February 2024 before me. On this occasion, Mr Scragg, who is an Adelaide-based solicitor, appeared on behalf of Mr Hillam, although he had not formally filed any Notice of Address in the proceedings.
As I recall, Mr Scragg submitted on behalf of Mr Hillam that his client was anxious to make arrangements to reach an accommodation with his creditors and negotiations, in this regard, were well advanced. I indicated that it was my view that the proceedings needed to proceed expeditiously, which was a position shared by both the solicitors for Crane Services and WBH Legal.
In addition, on 15 February 2024, the Trustee instructed his solicitor, Mr Sankey, to appear before the court as a courtesy. Mr Sankey indicated that the Trustee had not as yet received a Statement of Affairs from Mr Hillam.
Pursuant to the provisions of section 54 of the Act, where a sequestration order has been made, the person against whose estate such an order has been made, is mandated to provide a Statement of Affairs to both the official receiver and the Trustee appointed in respect of the estate.
On 15 February 2024, the hearing of the review application was adjourned to 15 March 2024 and the following further orders were made:
·The Applicant in the Review proceedings file and serve an affidavit in support of the Application including any relevant evidence on or before 29 February 2024.
·The Crediting Petitioner, Supporting Creditor and the Trustee are at liberty to file and serve any further relevant evidence on or before 8 March 2024.
·The Debtor is to file and serve a Statement of Affairs within 14 days of today’s date.
·Direct that the Trustee file and serve a report on or before 8 March 2024.
·Leave given to the Supporting Creditor to access all the documents filed in this matter.
Mr Hillam has not as yet filed his Statement of Affairs and accordingly, the Trustee has not been able to provide a formal report. However, on 8 March 2023, the Trustee filed a lengthy affidavit in which he set out his efforts to assist Mr Hillam to complete the necessary Statement of Affairs document, which is a proforma document and in my view not unduly complicated.
For reasons, upon which I will expand in due course, there is controversy regarding whether Mr Hillam has been provided with Mr Otway’s affidavit and what are the consequences of this in terms of these proceedings, particularly whether they should be adjourned.
However, there appears to be no controversy, that on 6 February 2024, Mr Hillam sent an email to the Trustee indicating that together with a company Kaneko Pty Ltd he had active cross-claim against WBH Legal in a sum in excess of $30m.
The import of this correspondence was that it would significantly outweigh the existing judgment debt in favour of WBH Legal. The tenor of Mr Hillam’s correspondence was that the cross-claim was ongoing and in these circumstances, he sought that the trustee pursue it on his behalf or authorise him to continue with the necessary litigation. This consent was not forthcoming.
On 29 February 2024, Mr Hillam filed an affidavit, in support of his review application. With all due respect to him, it is not an easy document to follow. However, in general terms, it appears to be his case that:
·He has not been validly served with the bankruptcy notice issued on behalf of Crane Services;
·He is solvent;
·He has a valid cross-claim against WBH Legal;
·The judgment entered in favour of Crane Services is subject to appeal;
·Crane Services is to be regarded as a secured creditor, with an interest in land owned by him. Accordingly, the relevant petition is misconceived and should be dismissed;
·The Trustee is not acting in the interests of his creditors but is only intent on securing fees for himself. As a consequence, the Trustee should be discharged.
As an annexure to his affidavit, Mr Hillam provided a copy of a judgment dated 20 November 2023, of Magistrate Jackson in respect of his application to set aside the judgment made in favour of Crane Services against him.
Her Honour accepted that Mr Hillam had a reasonable excuse for failing to appear at the original hearing of 23 May 2023, when judgment was entered against him, on the basis that at the time he was recovering from surgery.
However, she did not consider that he had a reasonable basis for defending the claim brought against him by Crane Services or had any reasonable basis to prosecute a counterclaim against it. In these circumstances, she dismissed Mr Hillam’s application to set aside the judgment in question.
Mr Hillam himself has provided scant evidence of the nature of his counter-claim against Crane Services. What I know of the matter I have gleaned from Magistrate Jackson’s comprehensive and considered judgment of approximately twelve pages. She sets out the history of Mr Hillam’s involvement with Crane Services as follows:
Mr Hillam was the sole director of Synergy Metals Group Pty Ltd ('Synergy'), now in liquidation. On 25 February 2020, he executed a personal guarantee in relation to goods or services provided to Synergy by Crane Services ('the Guarantee'). Crane Services took possession of Synergy's AT-15 Franna Crane ('the Crane') on 26 February 2020, and provided a substitute crane to Synergy while repairs were undertaken. Crane Services subsequently issued repair and hire invoices to Synergy between March to May 2020.
When Synergy failed to pay for the invoices, Crane Services withheld the Crane for a period. There was previous litigation in the Magistrates Court between Crane Services and Synergy about these facts ('the Synergy Proceedings').1 The Synergy Proceedings were settled by the parties on 5 August 2022, prior to a trial date. The terms of settlement were not complied with by Synergy and judgment was subsequently entered against Synergy on 16 September 2022 in the amount of$42,579.682 ('the Judgment').
Synergy failed to pay any of the Judgment sum and subsequently went into liquidation. Crane Services' s Claim seeks to enforce the Guarantee executed by Mr Hillam in satisfaction of the Judgment (citations removed).[6]
[6] See affidavit of John Hillam filed 29 February 2024 at page 13.
It would seem to be the case that there were three major limbs to Mr Hillam’s case against Crane Services. Firstly, that the terms of the guarantee did not extend to Mr Hillam in the particular circumstances of the case. It was found that the terms of the guarantee were broad and Mr Hillam’s defence in this regard did not extend beyond a mere assertion.
Secondly, Mr Hillam was criticised for wanting to re-litigate the earlier proceedings involving Synergy, which Magistrate Jackson considered she had no authority to do. This seems to me to be patently apparent.
Thirdly, he attempted to counter-claim on the basis, as best I can understand that Synergy did not have any proprietary interest in the crane and so presumably the guarantee provided by Mr was not operative. Magistrate Jackson described prior litigation in respect of the crane as being long and tortured (sic).
Magistrate Jackson expressed some concerns about the manner in which Mr Hillam had approached the litigation before her describing it as an abuse of process for Mr Hillam to go behind the settlement agreement involving Synergy and for him to assert different ownership of the relevant crane in different proceedings. As I understand it when it had suited Mr Hillam, it had been owned by Synergy and at other times owned by him.
She found he had not reasonable basis for pursing the counterclaim and he should be estopped from bringing it because of his earlier representation which he had made in the Synergy proceedings. Essentially, she had reservations about the probity of Mr Hillam’s actions. She wrote as follows:
The overall impression is that Mr Hillam is utilising his various company interests and his personal interests interchangeably, to avoid financial obligations including his obligations pursuant to the guarantee. In fairness to both parties, this litigation cannot be allowed to proceed.[7]
[7] See affidavit of John Hillam filed 29 February 2024 at page 29.
Magistrate Jackson apparently adjourned Crane Services’ application for costs to a further date. As a consequence of Magistrate Jackson’s decision, on 6 December 2023, Mr Hillam filed an appeal to the Supreme Court of South Australia, which purported to include a cross-claim for damages against Crane Services, in an amount of $220,660.00. I confess that I do not understand the basis for the cross-claim.
In his affidavit, Mr Hillam deposes as follows:
On 6 December 2023 I filed an appeal and stay application and a cross claim against Crane Service for $220,600 in damages. The basis of my cross-claim is damages etc (please state the basis of the cross-claim).[8]
I have a valid claim to set aside the debtors notice under other grounds that the debtors notice contains defects by over stating amount claimed.
The amount of defects, constituting a defect or irregularity in a bankruptcy notice or in its issue that is substantial and not procedural, as it would be objectively capable of misleading the debtor.[9]
[8] Verbatim.
[9] See affidavit of John Hillam filed 29 February 2024 at [9]-[11].
Mr Hillam has provided me with a copy of the notice of appeal, which he has apparently prepared himself. It twenty-three grounds twelve of appeal, which I do not find easy to follow. Mr Hillam assert that he had access to contradictory evidence that the relevant crane was not in fact repaired at all.
In terms of the cross-claim, he assets that the invoice relied on by Crane Services was in fact a quotation. He provides numerous examples of what the Magistrates’ Court should have found but, in my view, there is no evidence provided to support these assertions. I am concerned that the appeal in question is a delaying tactic.
In my view, the appeal lodged is a pleaded on the basis that Her Honour erred and should have made other findings. It contains little, in if any, detail of the legal and factual matrix in which it can be said the appeal has reasonable prospects of success. In my assessment, it is a blunt an and unparticularised assertion of error on the part of the learned magistrate concerned.
The subsequent cross-application seems to relate to a claim that Crane Services are liable for damages arising from the lien claimed by them on the crane which prevented Mr Hillam, presumably not Synergy, from being able to hire it for 117 weeks. The amount of this claim was asserted to be $220,600.00. This seems to fly in the face of the earlier judgment against Synergy.
In respect of his current level of solvency, Mr Hillam deposed that he controlled corporate entities, which owed him significant amounts of money. In addition, Mr Hillam claims to have a number of significant judgment debts, including one referable to WBH Legal, in his favour. Apart from the alleged amount referable to WBH Legal, he has provided no documents to support his assertion.
I have however been provided with a record of outcome, referable to proceedings between WBH Legal and Mr Hillam, in the Supreme Court of South Australia, over which Judge Dart presided.
Under the hearing Remarks, which apparently are transcription of Judge Dart’s comments, is the following:
By application FDN 118 the respondent seeks summary judgment on the cross claim. That can be dismissed because the form of the cross claim is not yet finalised. Interest is sought on the $121,000. That would appear to be premature as it will be pleaded in the proposed cross claim. The respondent no longer seeks to prosecute the second amended cross claim. That was the focus of the applicant's application FDN 123 which sought a strike out. It also sought security for costs. Application FDN 134 seeks to file a third cross claim. The form of the cross claim is not presently appropriate to be filed. The respondent is to take legal advice and produce a further version of the third cross claim for consideration by the applicant and by the Court. The respondent seeks a costs order in respect of the monies held in the solicitor's trust account which were paid out on agreement between the applicant and the liquidators. The Court has not adjudicated on who had the highest priority to the money. The monies were not paid out to the respondent. There was no event.[10]
[10] See affidavit of John Hillam filed 29 February 2024 at page 208.
Thereafter, Mr Hillam’s cross-claim is dismissed. An application for costs is reserved and any application for costs, to be made on behalf of Mr Hillam, in respect of the payment out of WBH Legal’s trust account, in an amount of $121,000.00 is categorised as Mr Hillam’s costs in the cause.
In all these circumstances, it is the submission of Mr Edmonds-Wilson of senior counsel, counsel for WBH Legal, in both these proceedings and the proceedings before the Supreme Court, that Mr Hillam’s assertion that he has an ongoing claim against WBH Legal, or has been awarded costs in any amount whatsoever, cannot conceivably be sustained. In his submission, Mr Hillam is either hopelessly confused about the matter or has mischievously made the assertion.
THE HEARING OF 15 MARCH 2024
The hearing of 15 March 2024 was unsatisfactory for a number of reasons. Firstly, Mr Scragg did not appear on behalf of Mr Hillam. As he had not filed any Notice of Address for Service, I accept that he was not required to do so. When asked, Mr Hillam said Mr Scragg was half acting for him or words to this effect.
In addition, as Mr Hillam lives in rented accommodation in Sydney, arrangements had been made for him to attend court by electronic means via a computer link. This proved to be ineffective and subsequently he was reached via telephone. I am satisfied that he was able to both speak to the court and be heard.
As previously indicated, the Trustee had filed an affidavit on 8 March 2024, which detailed Mr Otway’s attempts to obtain a Statement of Affairs from Mr Hillam, along with his preliminary enquiries as to the extent of Mr Hillam’s estate.
Mr Sankey indicated to the Court that this affidavit had been provided to Mr Scragg via email. Mr Hillam complained that he had not been provided with a copy of it and it was unfair for the court to proceed as a result.
Mr Edmonds-Wilson submitted that the court should not permit Mr Hillam to oppose the sequestration order on grounds different to those on which he had relied before the Registrar, namely that he was currently solvent. In support of this submission, Mr Edmonds-Wilson submitted that, in the absence of a Statement of Affairs, from Mr Hillam, it was not open to him to make such an assertion, which was unsupported by any cogent documentary evidence.
Shortly prior to the hearing Mr Hillam provided an Interim Application and a further affidavit sworn by him on 14 March 2024. These documents were not formally accepted by the registry, as they were filed on the day prior to that scheduled for the hearing to which they related. Nonetheless, I accepted these documents and arranged for copies of them to be provided to those representing Crane Services and WBH Legal.
In his Application, Mr Hillam sought an adjournment of the proceedings until 24 March 2024. He indicated that he would be in a position to pay Crane Services an amount of $21,349.90 on or before 23 March 2024; the sum of $2,000.00 to Lynch Meyer by the same date, notwithstanding his assertion that this firm was not one of his valid creditors.
Ms Scott, the solicitor for Crane Services, submitted to the court that the sum proposed was significantly less than the amount of her client’s judgment debt and was unacceptable to it. In addition, she conceded that her client had lodged a caveat on a property at Burra registered in Mr Hillam’s name but disputed that this caveat represented the secured interest, characterised by Mr Hillam.
In his affidavit of 14 March 2024, Mr Hillam asserted that he either personally or jointly owned shares in eight nominated proprietary limited companies, which have a net asset value in excess of $10,000,000.00 which could be distributed to him.
Again, he reiterated his assertion made earlier that he had a number of judgment debts in his favour, in an amount exceeding $1,000,000.00 and had viable cross-claims against both Crane Services and WBH Legal, which he wished to pursue.
In summary, in his affidavit, Mr Hillam asserted that he had assets valued in excess of $40,000,000.00. This included his alleged cross-claim against WBH Legal in an amount of $30,000,000.00 and a claim relating to a company called Kaneko Pty Ltd in an amount of $5,000,000.00.
In his affidavit, Mr Otway indicated that he had made searches in an attempt to locate assets owned by Mr Hillam. This had resulted in him identifying bank accounts, in Mr Hillam’s name, which had nominal amounts. The greatest of which was $18.72.
More significantly, Mr Otway deposed that his search of the records held by ASIC indicated that Mr Hillam did indeed own significant parcels of shares, in various proprietary limited companies.
Mr Otway further deposed that he had written to each of these companies informing each of them that as a consequence of Mr Hillam’s bankruptcy, ownership of the shares had vested in him and, as a consequence, he was required to make an assessment of their value. However, he had received no replies to any of his enquiries.
Mr Otway further deposed that he had requested that Mr Hilam provide information, including copies of the relevant judgment debts, which he claimed were owed to him. However, as with the Statement of Affairs, Mr Hillam had not responded to his requests.
Mr Otway confirmed that Mr Hillam did indeed own a property located at 1 East Street, Burra in the State of South Australia. This property was subject to a mortgage in favour of the Commonwealth Bank in an amount of approximately $116,000.00 which was in arrears.
Enquiries made by Mr Otway of an estate agent based in Burra indicated that, on the basis of a curb-side appraisal, the East Street property was worth approximately $130,000.00. Mr Otway confirmed that a caveat had been lodged against the property by Crane Services.
I appreciate that for Mr Hillam, these proceedings are significant indeed. However, dealing with him, in any logical or rational way, in respect of his complex and somewhat convoluted financial affairs, which seems to involve litigation on multiple fronts, and his involvement with numerous proprietary limited companies, was extraordinarily difficult.
Mr Hillam presented as a voluble but essentially polite person, with a capacity to argue his corner. I attempted, initially I hope patiently, and then with more frustration, to ascertain from him what was the actual documentary evidence, which supported his various assertions that he was firstly, an extraordinarily wealthy person, and secondly, had valid cross-claims against his two creditors in these proceedings.
In my assessment, Mr Hillam was able to vigorously argue the thrust of his various claims but was singularly unable to provide any substance in support of them. Reluctantly, I reached the conclusion that he has not a scintilla of credibility and his financial affairs are essentially a chimera.
In particular, I could see no basis for adjourning the proceedings, as sought by Mr Hillam, nor could I discern any realistic prospect that he would be able to satisfy his various debts, as they fell due. The only evidence in support of this claim, in my estimation, was Mr Hillam’s assertion to this effect, which he made continuously and vociferously.
In my view, the court must strike a balance between allowing an unrepresented and unqualified person to make submissions and allowing such a person to make repetitious and unstructured submissions.
Regrettably, I had to call an end to Mr Hillam’s submsissions, which I considered had provided whatever utility of what they were capable. The submissions relating to the review had to be concluded. The respondents to it are just as entitled to closure in respect of the proceedings as is Mr Hillam.
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;
Although I do not claim to fully understand Mr Hillam’s position, implicit in his submissions to the court is that he has not committed an act of bankruptcy as he has a valid counter-claim or set off against both Crane Services and WBH Legal.
The onus is on him to provide satisfactory proof in this regard. For the reasons delineated above, I do not accept that he has satisfied the court that he has such a counter-claim against either of the creditors in these proceedings.
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.
The evidence available to me is that the judgment debt in favour of Crane Services was confirmed by Magistrate Jackson on 20 November 2023. I am not satisfied that Mr Hillam’s purported appeal has any merits given the lack of detail provided in respect of it, even if Mr Otway was minded to pursue it.
In addition, I am not satisfied that Mr Hillam’s challenge to the bankruptcy notice issued by WBH Legal has any validity. I have been provided with an order of Judge Manousaridis, dated 23 February 2024, which indicates His Honour’s dismissal of Mr Hillam’s application to set aside the bankruptcy notice and directing that Mr Hillam pay WBH Legal’s costs.
More significantly, in this context, I can discern nothing from the concise judgment of Judge Dart to indicate that Mr Hilam’s cross-application, asserted to be in an amount of $20,000,000.00, against WBH Legal is either on foot or has any basis founded in truth.
Accordingly, in my view, the two bankruptcy notices issued in this matter against Mr Hillam remain unsatisfied. In these circumstances, in my view, section 52(1) of the Act is engaged. It was firstly engaged before the Registrar and remains engaged 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.
Recently, after the hearing of the initial sequestration proceedings, Mr Hillam has sought to challenge the service of the bankruptcy notice issued on behalf of Crane Services upon him. In this context, Crane Services relied upon an affidavit of Madeline Eichinger filed on 30 October 2023, in which she deposed as to her efforts to personally serve Mr Hillam.
Attempts had been made to serve Mr Hillam at an address at a registered office of a company with which he is associated. Thereafter attempts were made to serve him at a residential address said to be associated with him but the occupant of the premises disowned any knowledge of Mr Hillam.
However, Ms Eichinger also deposed that she had received correspondence from Mr Hillam, which provided a post office in Pyrmont, New South Wales, in which Mr Hillam had requested the dismissal of Crane Service’s application.
Finally, Ms Eichinger deposed that she had forwarded the relevant petition to a number of email addresses, which she believed were operated by Mr Hillam. These matters appear to be the basis of an order made by Registrar Colbran on 31 October 2023, dispensing with the need for the personal service of the Creditor’s Petition on Mr Hillam.
In any event, in my view, there can no doubt that Mr Hillam has been fully appraised of these proceedings and has been given an ample opportunity to take part in them, which he has exercised in both the proceedings before the Registrar and before me.
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[11] the onus to establish other sufficient cause rests as a matter of form and substance upon the debtor.
[11] 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,[12] 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
[12] 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[13] 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.
[13] 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)[14] 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[15] have been created.
[14] Hereinafter referred to as the FCFCOA Act.
[15] 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.[16]
[16] 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[17] 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:
[17] 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?
CONCLUSIONS
In my assessment, apart from his assertion that he has all manner of assets and is therefore solvent, Mr Hillam has provided no objective or concrete evidence to support his case, which is not supported by any investigation undertaken by the trustee. In my view, in this context, it is significant that the evidence indicates that Mr Hillam has done nothing to assist the trustee, particularly by providing a statement of his affairs, which is a statutory obligation to which he is subject.
In these circumstances, I am satisfied that Crane Services has established the matters specified in its petition, namely that Mr Hillam has committed an act of bankruptcy by failing to satisfy its judgment debt entered against him. Although it is not necessary to do so, I am also satisfied that the supporting creditor, WBH Legal has established the truth of the matters specified in the affidavit material filed on its behalf.
The moment of Mr Hillam’s case seems to be that he has a variety of valid cross-claims or appeals on foot against both Crane Services and WBH Legal and therefore, notwithstanding the fact that the sums specified in each of the respective bankruptcy notices remain unsatisfied, it is not the case that he has committed any act of bankruptcy.
Firstly, it is evident that Mr Hillam’s application to set aside the bankruptcy notice issued on behalf of WBH Legal has been dismissed following a review hearing conducted before Judge Manousaridis. Secondly, in my view he has failed to provide sufficient evidence that his prospects of success in respect of the considered and reserved judgment of Magistrate Jackson on appeal, in the Supreme Court of South Australia have reasonable prospects of success.
Justice Lindgren considered the import of section 40(1)(g) of the Act, in the context of an application to set aside a bankruptcy notice, when it was asserted that the debtor concerned has some form of counter-claim, set-off or cross demand equal to or exceeding the amount of the relevant judgment debt in Glew v Harrowell, in the matter of Glew.[18]
[18] Glew v Harrowell, in the matter of Glew [2003] FCA 373 at [9].
In broad terms, a debtor must satisfy the court that the counter-claim, set-off, or cross demand is made in good faith, and there is sufficient substance to the counter-claim, set-off or cross demand asserted to make it one which the debtor should, in justice, be permitted to have heard and determined in the usual way, rather than be forced to comply with the bankruptcy notice by payment or to commit an act of bankruptcy.
Clearly, it is not possible for any bankruptcy court to undertake a preliminary hearing of any such counter-claim in proceedings before it. What is required is a preliminary assessment directed towards such issues as to whether the debtor in question has a fair chance of success or are fairly entitled to litigate.
It involves a weighing up of issues relation the legal and factual merits of the claim relied upon by the debtor directed towards the question is it in the interests of justice to allow bankruptcy proceedings to go ahead or should a petitioning creditor be required to await the determination of any such claim.[19]
[19] See Guss v Johnstone (2000) 171 ALR 598 at 606.
I have attempted, as best I can, on the basis of the material provided by Mr Hillam to conduct such a balancing exercise. Necessarily, Mr Hillam is fervently desirous of avoiding personal bankruptcy. However the onus is on him to provide reasonably probative material that he has a fair chance of success and is fairly entitled litigate, not merely that he has an ability to do so. The emphasis is on the court’s assessment of the probity of the litigation not on its existence per se.
In my view, there is little, if any substance, to Mr Hillam’s assertion that he has a significant counter-claim available to him against WBH Legal as a result of some species negligence arising from his professional dealings with them. Firstly, it is evident there is in fact no such action in train. Rather it is contemplated. This is clear from the comments of Judge Dart to which reference has already been made.
Secondly, in my view, Mr Hillam has failed to delineate with any clarity what are the legal and factual merits of claim, such that the court can make some sort of appraisal as to whether he has any prospect of successfully prosecuting his claim. The onus is on Mr Hillam to provide this material, which is not discharged merely by him making reference to any relevant claim, either actual or mooted, in which he is or may be involved.
In my view similar issues arise in respect of the prospects or otherwise of Mr Hillam successfully pursuing his appeal in regard to Magistrate Jackson’s decision which led to the issue of Crane Service’s bankruptcy notice against him. In my view, the court’s authority to go behind any judgment debt is limited. I acknowledge that initially the relevant judgment arose as a consequence of non-appearance by Mr Hillam.
On the subsequent review, there can be no doubt that he was fully involved and was vindicated in respect of the reason for his non-appearance. However, in respect of the substantive aspects of his defence of the claim brought against him, he was wholly unsuccessful.
Relevant authorities require that Mr Hillam should give a substantial reason to authorise the court to, in effect, go behind the judgment debt in Crane Services favour. I consider that Mr Hillam needs to provide such a substantial reason to support his assertion that he has a valid cross-claim against Crane Services. I do not consider that he has done so. I assess his appeal as amounting to a list of assertions of error attributable to the relevant magistrate. I do not consider that it can be said to have reasonable prospects of success.
Given the absence of any such substantial reason, in my view, it would not be fair to Crane Services to hold its bankruptcy proceedings in abeyance, quite possibly for a lengthy period of time, when the challenge to its judgment debt is essentially an amorphous assertion of error. In addition, it is clear that the debt in question has been outstanding for a reasonably lengthy period of time.
I do not accept that it cannot be said that Mr Hillam has been validly served with the proceedings. In my view, a proper order was made for the dispensation of personal service on him. Division 6.4 of the Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 authorises the court to dispense with service or make an order in respect of substituted service.
The matters to be taken into account include the following:
·What reasonable steps have been taken to serve the documents;
·Whether it is likely such steps have brought the relevant proceedings to the notice of the person concerned;
·Whether the person concerned could become aware of the existence of the relevant proceedings or document to be served by other means of communication reasonably available;
·Costs;
·Any other relevant matters.
The evidence indicates that the solicitor for Crane Service did utilise other mechanisms to bring notice of these proceedings to Mr Hillam. Inquiries were made of him at the registered office of Synergy and documents sent to his electronic address. He took part in the proceedings.
Given there has been an inadequate explanation regarding the non-attendance of Mr Scragg at the hearing of 15 March, in the context, of Mr Hillam’s failure to cooperate with the trustee, I am not persuaded that there is any validity to Mr Hillam’s assertion that it is unfair to him for the court to proceed without him having prior access to Mr Otway’s affidavit.
Finally, I appreciate that matters of bankruptcy are primarily concerned with determining whether a person is or is not insolvent and are not a matters of mere debt collection given the sense of potential personal ignominy and failure which may attach to a person who is declared bankrupt.[20] A sequestration order is not one to be made lightly.
[20] Robson as former trustee of the estate of Samsakopoulos v Body Corporate for Sanderling at Kings Beach CTS 2942 [2021] FCAFC 143 at [7].
However, at the same time, I am not in a position to ignore the public interest. If Mr Hillam is insolvent, 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.
The judgment debts of both Crane Services and WBH Legal are for significant sums. There is no cogent evidence available to me from Mr Hillam to indicate that he is able to satisfy these debts, which appear to me to have been properly entered against him.
WBH Legal and other creditors stand in the wings to the take the place of Crane Services. I am not satisfied that Mr Hillam 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 Hillam 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 Otway in appearing in the review proceedings.
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-eight (128) numbered paragraphs are a true copy of the Reasons for Judgment of Judge Brown. Associate:
Dated: 22 March 2024
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