Davis v ABL Nominees Pty Ltd
[2014] FCCA 2069
•12 September 2014
FEDERAL CIRCUIT COURT OF AUSTRALIA
| DAVIS v ABL NOMINEES PTY LTD & ANOR | [2014] FCCA 2069 |
| Catchwords: PRACTICE AND PROCEDURE – Application for adjournment – considerations to be applied. PRACTICE AND PROCEDURE – Application for extension of time in which to make application for review of Registrar’s decision – whether Bankruptcy Act 1966 (Cth) or Federal Circuit Court Rules 2001 (Cth) apply to application for extension of time. |
| Legislation: Bankruptcy Act 1966 (Cth), ss.5(2), 33(1)(c), 52(2), 153B Federal Circuit Court of Australia Act 1999 (Cth), ss.3, 42, 81(1), 104(2) & (3) Federal Circuit Court Rules 2001 (Cth), rr.1.02A, 1.03, 3.05, 16.05(2)(a) Federal Magistrates Act 1999 (Cth), s.104(3) |
| Alvaro v Legalwest Pty Ltd [2012] FMCA 1088 Winn v Blueprint Instant Printing Pty Ltd [2011] FCA 292 |
| Applicant: | MARTHA BLANCHE DAVIS |
| First Respondent: | ABL NOMINEES PTY LTD |
| Second Respondent: | ALAN GEOFFREY SCOTT AS TRUSTEE OF THE BANKRUPT ESTATE OF MARTHA BLANCHE DAVIS |
| File Number: | MLG 915 of 2012 |
| Judgment of: | Judge Antoni Lucev |
| Hearing date: | 22 July 2014 |
| Date of Last Submission: | 22 July 2014 |
| Delivered at: | Perth |
| Delivered on: | 12 September 2014 |
REPRESENTATION
| Counsel for the Applicant: | Mr C Tomyn |
| Solicitors for the Applicant: | DC Legal Pty Ltd |
| For the First Respondent: | No appearance |
| Counsel for the Second Respondent: | Mr T Connard |
| Solicitors for the Second Respondent: | Sally Nash & Co Lawyers |
ORDERS (made on 22 July 2014)
The application for review filed 24 March 2014 be dismissed.
The applicant pay the second respondent’s costs of the application.
The second respondent’s costs of the application be costs and expenses in the administration of the bankrupt estate of Martha Blanche Davis.
That Reasons for Judgment will be published at a later time from Chambers.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT PERTH |
MLG 915 of 2012
| MARTHA BLANCHE DAVIS |
Applicant
And
| ABL NOMINEES PTY LTD |
First Respondent
| ALAN GEOFFREY SCOTT AS TRUSTEE OF THE BANKRUPT ESTATE OF MARTHA BLANCHE DAVIS |
Second Respondent
REASONS FOR JUDGMENT
Application
On 11 September 2012 Registrar Allaway made a sequestration order against the estate of the applicant, Martha Blanche Davis. Costs were to be paid from the estate of the applicant (then the respondent debtor) in accordance with the Bankruptcy Act 1966 (Cth).[1]
[1] “Bankruptcy Act”.
More than 18 months later on 24 March 2014 the applicant filed a notice to creditors that the applicant would be applying for a review of the decision of Registrar Allaway to make a sequestration order against her estate. Also filed were an affidavit of the applicant affirmed on 22 March 2014[2] and an affidavit of the applicant’s lawyer, Bruce Vernon Dennis, sworn 18 March 2014.[3] The application for review is well out of time, as an application for review of a Registrar’s decision in bankruptcy must be made within 21 days of that decision.[4]
[2] “Applicant’s Affidavit”.
[3] “Applicant’s Lawyer’s Affidavit”.
[4] Federal Circuit Court (Bankruptcy) Rules 2006 (Cth), r.2.03(2) (“FCC (Bankruptcy) Rules”).
Following a consent adjournment of the proceedings at a first directions hearing on 10 April 2014, this Court made orders on 19 June 2014 as follows:
1. Alan Geoffrey Scott as the trustee of the bankrupt estate of Martha Blanche Davis be joined to the proceedings as the named second respondent, and the previous respondent ABL Nominees Pty Ltd be designated the first respondent.
2. In relation to the applicant’s extension of time application for the review of the Registrar’s orders of 11 September 2014
(sic-2012) that:
(a) the applicant file and serve written submissions and any further affidavits in support of the application for an extension of time application by 3 July 2014;
(b) the first and second respondents file and serve written submissions and any affidavits in opposition to the application for an extension of time application by 17 July 2014;
(c) the application for an extension of time be listed for hearing before Judge Lucev in Melbourne at 9am on 22 July 2014.
3. Costs of today be reserved.[5]
[5] “19 June 2014 Orders”.
The applicant failed to comply with the 19 June 2014 Orders: no written submissions or further affidavits were filed in support of the application for an extension of time.
The first respondent did not comply with the 19 June 2014 Orders either, but the first respondent has not filed a Notice of Appearance nor appeared in the proceedings at all. The second respondent (the Trustee in Bankruptcy) complied with 19 June 2014 Orders by filing an affidavit[6] and written submissions.
[6] “Affidavit of Alan Geoffrey Scott, sworn 16 July 2014 (“Second Respondent’s Affidavit”).
When the matter came on for hearing of the application for an extension of time on 22 July 2014:
a)an adjournment sought by the applicant was not granted; and
b)orders were made dismissing the application for review, for costs of the second respondent to be paid out of the applicant’s bankrupt estate, and for Reasons for Judgment to be published from Chambers at a later date.
These Reasons for Judgment are those referred to in the orders of 22 July 2014.
The adjournment application
When the matter came on for hearing on 22 July 2014 Mr Tomyn appeared for the applicant. Mr Tomyn indicated that he had been called by a Sydney lawyer the previous evening shortly before 5.00pm and been instructed to appear at the hearing to seek an adjournment on the basis that there were negotiations to settle the matter, and to have the bankruptcy annulled, on foot. Mr Connard who appeared for the second respondent advised the Court that he was unaware of any such negotiations. The Court put to Mr Tomyn the litigation history of the matter prior to the 22 July 2014 hearing as outlined above,[7] and asked Mr Tomyn why, against that background, any adjournment should be granted. Mr Tomyn, who had endeavoured to contact the Sydney lawyer who had instructed him to appear shortly before the hearing, frankly, but quite properly, conceded that in the circumstances he was unable to make any submissions, either with respect to the adjournment or the merits of the application for an extension of time to file the application for review.
[7] See paras.1-5 above.
The Court indicated that the adjournment would not be granted.
Any application for adjournment must be considered in the relevant statutory, factual and case management context. The role and mode of operation of this Court as set out in the Federal Circuit Court of Australia Act 1999 (Cth)[8] and the Federal Circuit Court Rules 2001 (Cth),[9] and as prescribed by the objects of the FCCA Act[10] and the objects of the FCC Rules,[11] provide for the Court to operate in a manner:
a)as informal as possible in the exercise of judicial power;
b)which is not protracted in its proceedings;
c)which resolves proceedings justly, efficiently and economically;
d)which uses streamlined procedures; and
e)that avoids undue delay, expense and technicality.[12]
[8] “FCCA Act”.
[9] “FCC Rules”.
[10] FCCA Act, ss.3 and 42.
[11] FCC Rules, r.1.03.
[12] Goodall v Nationwide News Pty Ltd [2007] FMCA 218 at para.21 per Lucev FM, followed in The Director of the Fair Work Building Industry Inspectorate v Linkhill Pty Ltd (No. 3) [2013] FMCA 165 at paras.30-31 per O’Sullivan FM.
The Court must also take into account the following principles when determining whether or not to grant leave to allow an adjournment:
a)that the paramount consideration remains the doing of justice between the parties, but that a just resolution must have regard to any relevant legislative purpose or object;
b)modern principles of case management;
c)the avoidance of undue delay; and
d)the wastage of public resources.[13]
[13] Aon Risk Services Australia Limited v Australian National University (2009) 239 CLR 175 at 192 per French CJ and 213-215 per Gummow, Hayne, Crennan, Kiefel and Bell JJ; [2009] HCA 27 at para.30 per French CJ and paras.97-103 per Gummow, Hayne, Crennan, Kiefel and Bell JJ; Fair Work Ombudsman v Kentwood Industries Pty Ltd [2010] FCA 98 at para.2 per McKerracher J.
In this case the application for adjournment was made without notice to the Court, and with effectively no notice to the second respondent. The basis upon which the adjournment was sought, namely negotiations to settle the matter by way of an agreed annulment, were not the subject of any evidence, on affidavit or otherwise, and were expressly disavowed by Counsel for the second respondent. Having regard to all of the circumstances, the Court was of the view that it was not likely that any such negotiations had been entered into, and, in any event, there was no evidence of them before the Court such as to warrant the adjournment sought. There may also be prejudice to the second respondent by reason of the fact that the second respondent is required to continue to administer the bankrupt estate of the applicant in circumstances where the second respondent’s expenses of the administration are rendered uncertain because, if successful, the ultimate substantive application to set aside the sequestration order might result in the second respondent’s expenses of the administration, which by reason of the fact that the administration is now some 18 months old are not inconsiderable,[14] may be put in jeopardy.[15]
[14] See Second Respondent’s Affidavit, para.8.
[15] Pattison v Hadjimouratis (2006) 155 FCR 226; [2006] FCAFC 153 (“Hadjimouratis”).
In circumstances where the 19 June 2014 Orders were made for the filing of further affidavits and written submissions in relation to the extension of time application, and no such affidavits nor written submissions had been filed by the applicant, and where the application for adjournment was made without notice at hearing, the Court, bearing in mind the statutory objectives and rules which govern this Court, and having regard to the nature and role of this Court as a first instance federal trial court, took the view that the interests of justice and case management issues did not favour the grant of an adjournment. The Court also took the view that there comes a time in all litigation where it is necessary for a Court to make progress towards its fundamental task of resolving the relevant controversy, and in this case, having regard both to the existing length of the administration of the bankrupt estate, and the fact that the application to extend time to set aside the sequestration order had been on foot for the better part of four months without any progress if an adjournment was granted, it was not in the interests of justice to grant the adjournment sought. Case management considerations also weighed heavily against any adjournment. Accordingly, the application for an adjournment was not granted.
Extension of Time
Section 33(1)(c) of the Bankruptcy Act does not apply to the applicant’s application to extend time in which to make the application for review. Section 33(1)(c) of the Bankruptcy Act allows for an extension of time to “any time limited by this Act”, “this Act” being the Bankruptcy Act. The power to review a Registrar’s decision arises under s.104(2) of the FCCA Act. The power to extend time arises under s.81(1) of the FCCA Act, which provides the Court with power to make rules of Court with respect to practice and procedure, and r.3.05 of the FCC Rules, which provides that the “Court may extend … time fixed by these Rules”, and may do so “even if the time fixed has passed”.[16] Because the FCC (Bankruptcy) Rules are silent as to extension of time, the FCC Rules apply with respect to the extension of time by reason of r.1.03(2) of the FCC (Bankruptcy) Rules which provide that “other rules of the Court apply, so far as they are not inconsistent with these Rules, to a proceeding to which the Bankruptcy Act applies.” The Bankruptcy Act otherwise applies to these proceedings because the draft application for review seeks to annul the bankruptcy or have the sequestration order set aside pursuant to ss.52(2) and 153B of the Bankruptcy Act. Rule 1.02A of the FCC (Bankruptcy) Rules provides that those rules are made under the FCCA Act. Likewise, r.1.02A of the FCC Rules provides that it is made under the FCCA Act. It follows from the foregoing that the Court has power to extend time for the filing of an application for review of a Registrar’s decision in bankruptcy proceedings, and that power arises under r.3.05 of the FCC Rules.
[16] FCC Rules, r.3.05(1) and (3).
In the exercise of the Court’s discretion under r.3.05 of the FCC Rules to extend time in which to file an application for review no criteria for extending time are set out. This Court’s discretion is therefore unfettered, but it is generally accepted that the relevant considerations are those set out by the Federal Court in Hunter Valley Developments v Cohen,[17] namely:
a)that relevant time limits ought not be lightly ignored;
b)the length of the delay;
c)the explanation for the delay;
d)the prejudice to the other party; and
e)the prospects of success of the underlying application, with the emphasis generally being on this latter issue.[18]
[17] (1984) 3 FCR 344 (“Cohen”).
[18] Cohen at 348-349 per Wilcox J; Winn v Blueprint Instant Printing Pty Ltd [2011] FCA 292 at paras.15-16 per Ryan J; Deputy Commissioner of Taxation v Jaskola (2011) 8 ABC(NS) 603 at 608 per Lucev FM; [2011] FMCA 67 at para.18 per Lucev FM.
Time limits and length of delay
The length of the delay is very substantial. The application for review is more than 17 months out of time. The length of the delay is so considerable that it cannot be ignored, lightly or otherwise, and it must, in the Court’s consideration, weigh heavily against an extension of time being granted.
Explanation for delay
No affidavit was filed by, or on behalf of, the applicant under the 19 June 2014 Orders to explain the delay in seeking the application for review. The Court has however reviewed the Applicant’s Affidavit and the Applicant’s Lawyer’s Affidavit filed prior to the Court making the 19 June 2014 Orders, and the Second Respondent’s Affidavit, to see if any explanation for the delay is otherwise discernable. The abovementioned affidavits demonstrate that:
a)on 4 February 2013 the applicant’s lawyers wrote to the lawyers for the first respondent:
i)referring to the sequestration order made on 11 September 2012;
ii)indicating that advice had been sought from them in relation to an application under s.104(3) of the then Federal Magistrates Act 1999 (Cth), now the FCCA Act, or s.153B of the Bankruptcy Act;
iii)indicating that the matter had been discussed with the second respondent, “and the intentions of the bankrupt noted” by the second respondent;
iv)asserting that on their instructions the sequestration order ought not to have been made against the applicant;
v)suggesting that the applicant had been unable to defend the claim which resulted in the judgment debt which formed the basis for the sequestration order, and had been unable to do so because a heart attack in December 2011; and
vi)suggesting that the applicant was solvent by reason of substantial equity in two properties in the range of $500,000 and approximately $30,000 in superannuation.[19]
[19] Applicant’s Lawyer’s Affidavit, annexure A.
b)the 4 February 2013 letter from the applicant’s lawyers to the lawyers for the first respondent seemingly not having been sent until 18 March 2013,[20] the first respondent’s lawyers responded with respect to the 4 February 2013 letter and another letter from the applicant’s lawyer on 15 March 2013, to the applicant’s lawyers on 18 March 2013 advising that:
[20] Applicant’s Lawyer’s Affidavit, annexure B.
i)the Certificate of Judgment for the judgment debt was entered on 12 May 2009, more than two years before the applicant’s heart attack in December 2011;
ii)affidavits of service of the bankruptcy notice on 13 June 2012 and the creditors petition on 27 August 2012 were annexed; and
iii)the applicant was a bankrupt and her rights had vested in the second respondent, and the first respondent considered the matter to be finalised and had no further instructions to act in relation to the matter;[21]
[21] Applicant’s Lawyer’s Affidavit, annexure B.
c)the Applicant’s Lawyers’ Affidavit says that:
3The writer spoke to the trustee in bankruptcy who indicated initially that they would await the outcome of the class action in the Supreme Court of Victoria before Justice Croft, who was to determine whether or not loans made in relation to managed investment project[s] could be set aside.
4There has been a change of attitude in the trustee in bankruptcy who now wishes to sell one of Martha Davis’ properties to pay out the debt.[22]
d)on 21 January 2014 the second respondent sent a letter to Mr Michael Kolody of MDK Wealth Management who had apparently been authorised by the applicant to handle matters pertaining to her bankruptcy. The second respondent advised that:
i)the applicant was the sole registered proprietor of two properties in Fern Tree Gully and Dingley Village which must necessarily be realised for the benefit of the creditors of the applicant’s bankrupt estate, and that to that end the second respondent had put his name on the title of the properties in his capacity as Trustee of the applicant’s bankrupt estate;
ii)he had refrained from taking further steps to realise the properties as the applicant had indicated she was participating in a class action against “petitioning creditor Great Southern Investments”, and that if that if that were successful it might result in the bankruptcy being set aside;
iii)nothing appeared to have progressed in regard to the class action, and that the second respondent could not postpone administration of the applicant’s bankrupt estate indefinitely on the basis that the class action may be successful at some yet to be determined future date; and
iv)should the second respondent not be provided with evidence of a successful class action resulting in the setting aside of the bankruptcy by 3 March 2014 the second respondent would seek vacant possession of both properties and engage an agent to market and sell the properties as soon as practicable;[23]
[22] Applicant’s Lawyer’s Affidavit, paras.3-4.
[23] Second Respondent’s Affidavit, annexure D.
e)there is no evidence of either the applicant or the applicant’s lawyers taking any action between 18 March 2013 and 4 February 2014;
f)on 4 February 2014 the applicant’s lawyers sent a letter to the second respondent. That letter was in the following terms:
I refer to our discussion today.
The Class Action in the Supreme Court of Victoria finalised last year and the decision of Justice Croft is expected in the first quarter of this year.
We confirm that to save costs we ask that no action be taken on this matter until the decision is handed down.
If the class action sets aside the loan then it should be straight foreward [sic] to set aside the bankruptcy.
If the Bank is successful the equity in our client’s properties is more than enough to satisfy the debt.
Please confirm your intentions as soon as possible as we may have to apply to the relevant Court for appropriate orders to prevent the sale of our client’s home pending the decision of Justice Croft.[24]
[24] Applicant’s Affidavit, annexure E.
g)on 5 February 2014 the second respondent responded to the applicant’s lawyer’s letter of 4 February 2014 by email in the following terms:
I advise that prior to the trustee considering an extension to the deadline of realising the bankrupt’s property(s), he requires documentation confirming that the bankrupt is actually part of the class action. To date, we have received numerous assertions that this is the case but we have yet to sight any documentation to verify it.
Should such documentation not be received by close of business on 10 February 2014 the trustee will proceed to seek vacant possession of the bankrupt’s property(s) on 3 March 2014 as previously advised.[25]
[25] Applicant’s Affidavit, annexure F.
h)on 17 March 2014 the applicant’s lawyers sent a letter to the second respondent and to the lawyers for the first respondent indicating that they were “in the process of filing an Application for Review to have our client’s [the applicant’s] bankruptcy set aside”, and enclosed a draft of the Application for Review;[26]
i)relevantly the orders sought in the draft Application for Review enclosed with the 17 March 2014 letter from the applicant’s lawyers sought orders that:
i)the sequestration order be set aside pursuant to r.16.05(2)(a) of the FCC Rules;
ii)leave be granted to make the application for review out of time pursuant to r.2.03 of the FCC (Bankruptcy) Rules;
iii)alternatively, pursuant to s.104(3) of the FCCA Act the sequestration order be reviewed;
iv)alternatively, the bankruptcy be annulled pursuant to s.153B of the Bankruptcy Act; and
v)alternatively, the sequestration order be set aside; and
j)a week later on 24 March 2014 the applicant filed the notice to creditors that the applicant would be applying for a review of the Registrar’s decision on 11 September 2012 to make the sequestration order.
[26] Applicant’s Lawyer’s Affidavit, annexure C.
From the above facts it can be seen that it was almost five months after the making of the sequestration order before the applicant’s lawyers foreshadowed on 4 February 2013 that there might be an application for review, which by that time was already more than four months out of time. That delay, which is of itself not inconsiderable, is wholly unexplained. It would appear that the letter dated 4 February 2013 was then not sent for a further six weeks, that is, until 18 March 2013, and once again that delay is wholly unexplained. Thus, by the time the applicant’s lawyer’s letter of 4 February 2013 reached the first respondent’s lawyers a wholly unexplained delay of more than 6 months had occurred.
Even after receipt of the email of 5 February 2014 from the second respondent advising of his intention to proceed to seek vacant possession of the bankrupt’s property in order to proceed with a sale unless confirmation of the applicant’s involvement in the class action was forthcoming, the applicant and the applicant’s lawyer take no action for a period of some six weeks, until 17 March 2014. On that date the second respondent was advised that the applicant was in the process of filing an application for review. A week later the notice to creditors of an intention to file an application for review was filed in this Court.
Two significant matters arise from the above analysis and exposition of the facts, namely:
a)that the applicant provided no evidence to the second respondent that she was in fact a party to the relevant class action, and has provided no such evidence to this Court; and
b)even after being put on notice by the second respondent of an intention to realise the Fern Tree Gully and Dingley Village properties for the benefit of the creditors of the applicant’s bankrupt estate, first on 21 January 2014, and again on 5 February 2014, it was not until 24 March 2014 that the notice to creditors of an intention to file an application for review was filed in this Court. Thus, a further period of two months elapsed in respect of which there is no adequate explanation for the delay in filing an application for review. Even that delay is outside the period for filing an application for review under r.2.03(2) of the FCC (Bankruptcy) Rules. Together with the delays prior to 15 March 2013, the total non-class action related delays in this case amount to some eight months.
In all of the above circumstances, there is no proper or adequate explanation for the delay of eight months which makes up a substantial part of the delay in filing the notice to creditors of an intention to file an application for review more than 13 months after it was first foreshadowed by the applicant’s lawyer, and more than 18 months after the sequestration order was made by the Registrar.
Prejudice
The second respondent’s expenses of that administration are put in jeopardy if an application which seeks to set aside the sequestration order is allowed to proceed, and is ultimately successful.[27] In the circumstances of this case, given the existing length of time of the administration of the applicant’s bankrupt estate by the second respondent, and the amount expended in that administration,[28] the Court is of the view that there is considerable and substantial prejudice to the second respondent if an extension of time is granted.
[27] See para.12 and fn.15 above.
[28] See Second Respondent’s Affidavit, para.8.
Prospects of success of the underlying application
The underlying application in this case was for a review of the Registrar’s decision to issue a sequestration order based on a creditors petition. That decision is susceptible to the exercise of the Court’s powers under s.104(3) of the FCCA Act. The underlying application also seeks to have the sequestration order set aside under r.16.05(2)(a) of the FCC Rules because it was made in the applicant’s absence, or alternatively to have the applicant’s bankruptcy annulled under s.153B of the Bankruptcy Act.
At the hearing of the creditors petition there was proof before the Registrar of:
a)the matters stated in the creditors petition, verified by affidavit, as to the existence of the judgment debt;
b)service of the creditors petition; and
c)the fact that the judgment debt was still owing.
The Registrar accordingly made a sequestration order on 11 September 2012.
Because the applicant requires an extension of time in which to file an application for review it has not been necessary for the second respondent to put before the Court proof of the above matters as at the date of the hearing in this Court, as the hearing in this Court is not of an application for review, but rather an extension of time in which to file an application for review. For present purposes, the Court can be satisfied that those matters were properly proved before the Registrar at a hearing at which the applicant did not appear.
Essentially, the argument to be put on the application for review would be that a sequestration order ought not issue, and the creditors petition ought to be dismissed, under s.52(2) of the Bankruptcy Act. Under s.52(2) of the Bankruptcy Act the Court may decline to make a sequestration order if the debtor (here the applicant) proves that:
a)she is able to pay her debts (that is, she is solvent); or
b)there is other sufficient cause why a sequestration order ought not be made.
Solvency is relevantly expressed in terms of a debtor being “able to pay his or her debts”.[29] If the applicant can prove to the Court that she is solvent then the Court would have the discretion to dismiss the creditors petition.[30] Solvency requires that the applicant be able to pay debts as they fall due out of her own money. This includes both cash on hand and money able to be obtained reasonably quickly by asset realisation. Temporary lack of liquidity will not generally constitute insolvency.[31] Solvency means being “able to pay all … debts, as and when they become due and payable”.[32] Account must be taken of debts “which will fall due in the reasonably immediate future pursuant to existing obligations”,[33] and whether the debtor will be able to pay them.[34] If a debtor is in a position to pay debts owed within a reasonable time, no sequestration order ought to be made.[35] In assessing solvency the Court ought not take account of realisable assets required for a debtor to live a reasonably comfortable and dignified existence.[36]
[29] Bankruptcy Act, s.52(2)(a).
[30] Re Sanders; Knudsen and Yates (t/a The Hargreaves Practice) v Sanders (2003) 1 ABC(NS) 408 at 413 per Bennett J; [2003] FCA 1079 at para.22 per Bennett J (“Re Sanders”).
[31] Sandell v Porter & Anor (1966) 115 CLR 666 at 670 per Barwick CJ (“Sandell”).
[32] Bankruptcy Act, s.5(2).
[33] Re Sanders ABC(NS) at 414 per Bennett J; FCA at para.27 per Bennett J.
[34] Re Sanders ABC(NS) at 414 per Bennett J; FCA at para.26 per Bennett J; International Alpaca Management Pty Ltd v Ensor [1999] FCA 72 at paras.8-10 per Katz J (“International Alpaca”); Bank of Australasia v Hill (1907) 4 CLR 1513 at 1527 per Griffith CJ.
[35] Re Sarina; Ex parte Council of the Shire of Wollondilly (1980) 43 FLR 163 at 165 per Deane J (“Sarina”); Sarina v Council of the Shire of Wollondilly (1980) 48 FLR 372 at 375 per Bowen CJ, CA Sweeney and Lockhart JJ (“Shire of Wollondilly”).
[36] International Alpaca at paras.15-16 per Katz J.
Mere proof of solvency may, however, not be sufficient: the relevant assets must be available to be realised and capable of ready realisation, so that assets not available for execution of garnishment by creditors may not be proof of an ability to pay debts, and a capacity to borrow to pay debt, but a refusal to do so, may result in a court exercising its discretion against the debtor.[37]
[37] Trojan v Corporation of Hindmarsh (1987) 16 FCR 37 at 48 per Northrop, Jenkinson and Burchett JJ; Australia & New Zealand Banking Group v Foyster [2000] FCA 400 at para.17 per Hely J; Dunn, in the matter of Dunn v Vangsnes [2000] FCA 1051; Re Elwyn John Capel (Debtor); Ex parte Caram Finance Australia Limited (formerly called Marac Finance Australia Limited) ACN 000 098 402 (Creditor) (unreported, Federal Court of Australia, QG 7299 of 1997, Finn J, 9 April 1998).
There is little direct evidence as to the applicant’s financial position. The second respondent indicates that two formal proofs of debt totalling $95,155 have been provided to him, and that he is aware of another creditor with a claim amounting to $3,000 who is yet to lodge a proof of debt. The Applicant’s Affidavit and the Second Respondent’s Affidavit annex the applicant’s Statement of Financial Affairs filed on 18 December 2012 in her bankruptcy.
The applicant’s Statement of Financial Affairs reveals that she is a 59 year old widow who has been unemployed for the last five years, and who cannot now work as a consequence of suffering a major stroke in December 2011, and that her income is a disability pension of $664 a fortnight.
The applicant’s liabilities in her Statement of Affairs include the judgment debt in the sum of $50,501.59, plus interest accruing since the date of judgment, which as at the date of issue of the bankruptcy notice on 19 January 2012 had taken the total amount owing to $58,645.08. Additionally, it would appear that the applicant owed, as at 18 December 2012 either $28,000 or $30,600 on two bank credit cards. The applicant’s liabilities under the judgment debt and the two bank credit cards therefore exceed $86,000.
In the correspondence between the applicant’s lawyers and the second respondent the applicant’s lawyers place some emphasis upon the fact that the applicant ought not to have been made bankrupt, or was capable of meeting of debts, as a consequence of her interests in two properties. From the applicants Statement of Financial Affairs one of these properties is in Fern Tree Gully and the other in Dingley Village, both in the State of Victoria. The evidence with respect to them is not entirely clear.
In relation to the Fern Tree Gully property it is asserted that it has an estimated re-sale value of $360,000, based upon a rates notice which is not in evidence. The applicant says that creditors who hold security over the property are owed $338,000. She also says that her son and daughter-in-law live in the Fern Tree Gully house and have paid the loan payments since its inception, and that the loan is in her daughter-in-law’s name. The property was purchased on 10 April 2008. In relation to the Dingley Village property it is said, again on the basis of a rates notice which is not in evidence, to have an estimated re-sale value of $455,000. No amount has been inserted as owing to creditors who hold security over the Dingley Village property. The applicant however lists under secured creditors an amount owing of $335,000 (it is not said to whom) by way of a mortgage or mortgages over both the Fern Tree Gully and Dingley Village properties. The applicant does not indicate by whom the mortgage or mortgages over these properties are held, or the repayments required in relation to them, but does indicate that the repayments are up-to-date. Furthermore, given that her son and daughter-in-law have been meeting the repayments, there is no indication as to the extent of their interest in the properties by reason of their having made mortgage payments. What is significant, however, is that payments under the mortgage have not been made by the applicant, but by her son and daughter-in-law, since 10 April 2008. Given that the applicant has been unemployed for the last five years, and on a disability pension since October 2012, the fact that she has not made any mortgage repayments in respect of either of the properties is not surprising.
The applicant has led no evidence:
a)from a valuer, or even a real estate agent, as to the actual value of the Fern Tree Gully and Dingley Village properties;
b)as to whether or not the Fern Tree Gully and Dingley Village properties can be sold, or sold within a reasonable period of time;
c)as to the precise extent or nature of her, or her son and daughter-in-law’s, interest in the Fern Tree Gully and Dingley Village properties by reason of their payment of the mortgage or mortgages for those properties; and
d)as to her capacity to borrow in order to repay any debts.
The applicant does assert an entitlement to $28,000 in a regulated superannuation fund, but indicates that she does not expect to receive payment from any superannuation fund in the next three years (that is until December 2015).
The applicant indicates that as at the time she completed the Statement of Financial Affairs she had $50 cash at bank.
In summary, the applicant has:
a)significant liabilities in excess of $86,000 and probably in excess of $93,000;
b)no capacity to meet the mortgage repayments on the Fern Tree Gully or Dingley Village properties;
c)provided no evidence as to an actual valuation of the Fern Tree Gully or Dingley Village properties, or the extent or nature of her or her son and daughter-in-law’s interest, in both of those properties, and, bearing in mind both of those matters, whether or not the properties can be sold, or sold within a reasonable period of time;
d)provided no evidence of her capacity to borrow to pay debts;
e)no capacity to access her superannuation in the short term; and
f)a very limited income, and virtually no cash resources.
In all of the above circumstances, the Court is of the view that the applicant has not demonstrated that she might arguably be able to pay her outstanding debts, or realise within a reasonable period of time assets that she has, in order to enable her to pay her debts. In those circumstances the Court was not satisfied that the applicant was able to pay her debts. It does not consider that it is arguable that the creditors petition could be dismissed on the basis that the applicant is able to pay her debts. There is no evidence that the applicant is, within a relatively short time,[38] able to pay her debts.
[38] Sandell at 670 per Barwick CJ.
The question arises as to whether any other sufficient cause for the sequestration order not to have been made might arise. Although the applicant asserts that she was not served with the process in relation to the judgment giving rise to the judgment debt, or the creditors petition, there is evidence before the Court that process was correctly served. In any event, the applicant’s evidence rises no higher than that she has no recollection in relation to these matters.
There is no evidence of any other basis on which the Court might find that there was other sufficient cause to dismiss the creditors petition.
The suggestion in the draft application for review that the Court might make an order annulling the bankruptcy under s.153B of the Bankruptcy Act cannot be sustained.[39] That is because, for all of the reasons set out above in relation to the prospects of success of the underlying application, the Court cannot be satisfied that a sequestration order ought not to have been made by the Registrar on 11 September 2012.
[39] Upon making an application to review a sequestration order it is open to the applicant to seek the alternative remedy of an order annulling the bankruptcy: see Hadjimouratis.
The suggestion in the draft application for review that the Court might make an order setting aside the sequestration order under r.16.05(2)(a) of the FCC Rules also cannot be sustained.
The criteria to be applied when exercising the Court’s discretion as to whether or not to set aside orders previously made are those set out in Singh v Official Trustee in Bankruptcy & Anor,[40] and followed in Alvaro v Legalwest Pty Ltd,[41] namely:
a)that there is an adequate reason for the non‑appearance;
b)that there is no delay in making the application to set aside;
c)whether the party in whose favour orders have been made would be prejudiced by a new hearing in any respect which could not be adequately compensated by a suitable award of costs or the giving of security; and
d)that there is an arguable case on the merits of the substantive application.[42]
[40] [2008] FMCA 521 (“Singh”).
[41] [2012] FMCA 1088 (“Alvaro (2012)”).
[42] Singh at para.19 per Lucev FM (and cases cited therein at fn.8), followed in Alvaro (2012) at para.9 per Lindsay FM.
In this case there has, as set out above, been a delay in making the application to set aside, which is not properly or adequately explained in relation to a substantial portion of that delay, and there is not an arguable case on the merits of the underlying application which effectively seeks to have the creditors petition dismissed. In those circumstances, an application to set aside the sequestration order under r.16.05(2)(a) of the FCC Rules could not succeed.
In the above circumstances there is, in the Court’s view, no prospect that the underlying application sought to be reviewed would have had any prospect of success were an application for review to have been brought within time, or if time were to be extended in which to file the application for review.
Conclusion and order
For all of the above reasons, the Court made an order on 22 July 2014 dismissing the application, and with respect to:
a)costs; and
b)judgment to be delivered later from Chambers.
I certify that the preceding forty-six (46) paragraphs are a true copy of the reasons for judgment of Judge Antoni Lucev
Associate:
Date: 12 September 2014
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