DCT v McCormick - [2005] FMCA 675

FEDERAL MAGISTRATES COURT OF AUSTRALIA

DCT v McCORMICK

[2005] FMCA 675

BANKRUPTCY – PRACTICE AND PROCEDURE – Application for adjournment – grounds relied upon similar to ground for earlier adjournment – application refused.

Bankruptcy Act 1966, s.52

Applicant:

DEPUTY COMMISSIONER OF TAXATION

Respondent:

BRYAN McCORMICK

File Number:

MLG 1664 of 2004

Judgment of:

McInnis FM

Hearing date:

9 May 2005

Delivered at:

Melbourne

Delivered on:

9 May 2005

REPRESENTATION

Counsel for the Applicant:

Mr. S. Gardiner

Solicitors for the Applicant:

Australian Taxation Office

Counsel for the Respondent:

Mr. R. Broberg

Solicitors for the Respondent:

Irlicht & Broberg

ORDERS

The petition be adjourned for further hearing on Wednesday 11 May 2005 at 2.15 p.m.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
MELBOURNE

MLG 1664 of 2004

DEPUTY COMMISSIONER OF TAXATION

Applicant

And

BRYAN McCORMICK

Respondent

REASONS FOR JUDGMENT

(Revised from transcript)

This is an application by Bryan McCormick the respondent debtor to a creditor’s petition filed by the Deputy Commissioner of Taxation on

21 December 2004 for an adjournment of this petition for a period of three months. The creditor’s petition filed on 21 December 2004 relies upon a judgment debt obtained by the creditor in the County Court in the state of Victoria on 27 November 2003. That judgment having been obtained in 2003 is now the subject of this petition.
The matter was originally listed before the Court for a first return date on 1 March 2005. When it came before the Court on that day a Registrar adjourned the matter to 9 May 2005. Upon the matter being listed before the Registrar this day, it was transferred to this Court for consideration of the application by the debtor for an adjournment. It is relevant to note that the debtor has relied upon an affidavit sworn by him on 28 February 2005 and a further affidavit also sworn by the debtor on 29 April 2005. The debtor otherwise relies upon an affidavit of his wife, Gaynor Lyn McCormick, sworn 6 May 2005.
The adjournment that was granted by the Registrar on 1 March 2005 was clearly based upon material then provided by the debtor to the Court and in particular the first affidavit of Mr McCormick. In that affidavit it is noted that amongst other things Mr McCormick deposes that he is a sole practitioner conducting a legal practice in Ballarat under the name of McCormicks. He claims to have an established clientele, with currently debtors outstanding to the firm of approximately $40,000 and work in progress of approximately $120,000. He deposes that:
“If a sequestration order was made against my estate I would not be able to continue in practice which would be a significant detriment to me”.
Perhaps more significantly in the affidavit he refers to his statement of assets and liabilities. Those assets include, apart from a vehicle and the work in progress to which reference has been made, an amount of $100,000 said to be attributable to lot 2 on proposed plan of subdivision of 40 Stockdale Street and payment due on a planning approval at Lake Federation of $100,000 and $180,000 respectively. The liabilities referred to include a liability to the petitioning creditor there said to be $129,000 and liability for rent to an estate agency of $60,000.
In the first affidavit of Mr McCormick he claims to be able to pay his debts. The application for adjournment, as I understand it, is based upon the proposition that the debtor has the capacity, given time, to realise assets over which he has control in which to satisfy the debt which is the subject of the creditor’s petition. It is significant to note that in the first affidavit the deponent in support of his application refers, firstly, to a property at Stockdale Street, Ballarat. He states the following:
“This property is owned by my wife. It has a current valuation of $375,000 with a mortgage of $270,000. The property consists of 2 & 1/2 acres of land. I have prepared a plan of subdivision which will be lodged within 7 to 14 days with the municipal authority. The effect of this plan is to excise a 1/2 acre block which will be sold to the adjoining neighbour. The price agreed with the neighbour is $100,000. That amount will be paid when the plan of subdivision is approved and registered. It is expected that this will take between 2 and 3 months”.
In the affidavit Mr McCormick deposes further:
“The remaining two acres of land will be retained by my wife and is the property on which the family home is situated where my wife, myself and our four children reside. The existing mortgage on the property will be refinanced with the refinancing taking security over the 2 acre home block only, leaving the ½ acre block free of security. We are instructed by a local real estate agent and verily believe that even if the adjoining neighbour elected not to proceed with the purchase the ½ acre block could be readily sold within 24 hours on the open market for a price of $100,000 or more”.
Significantly in the affidavit the deponent refers to the following:
“My family trust Stockade Family Trust is holder of a 9% equity in a project called The Lake Federation Project. This is a project for a development of a major health and lifestyle resort which will comprise two championship golf courses, 3000 houses an hotel and retirement village”.
He goes on to say:
“An independent planning panel appointed by the Planning Minister had previously assessed the project and after a series of public hearings recommended to the Minister in December 2004 that the project be approved”.
It is not necessary for me to otherwise recite the contents of that first affidavit save that it is relevant to note that the request for the adjournment on that occasion prior to the hearing before the Registrar according to the affidavit of the deponent was for the following reasons:
a)to enable the correct amount owing the applicant to be ascertained from the assessment of the BAS returns about to be lodged;
b)to enable completion of the sale of the half‑acre block to be excised from the home property;
c)to await ministerial approval in respect of The Lake Federation Project and a payment of $180,000 to the Stockade Family Trust;
d)to enable payment of the full amount outstanding to the applicant from either the sale of the land or the payment to the trust in respect of The Lake Federation Project.
It is claimed for and on behalf of the debtor that since the date of the first affidavit the anticipated sale and/or arrangements for disposition of the properties to which reference has been made has progressed significantly and to the extent that it has progressed or progressed significantly the Court should be encouraged to allow the adjournment. It is further claimed that there is no prejudice to the creditor in the event that an adjournment will be granted and further claimed now, as it was on 28 February 2005, that there would be significant prejudice to the debtor. It is noted in passing that the first affidavit, whilst referring to a price agreed with the neighbour of $100,000 in relation to the Stockade Street property, does not exhibit any further evidence in relation to any proposed sale but simply asserts that there has been an agreement in relation to the price. There is no further material available in relation to any proposed agreement or the sale of that property.
In the second affidavit of the debtor which is before the Court and sworn 29 April 2005 further details are provided in relation to the progress which it is claimed has been significant. In relation to the sale of the subdivided half acre from 40 Stockade Street, Ballarat, the deponent claims that the plan of subdivision, surveyor's report and application was received back from planning consultants on 15 April 2005 and lodged with the Ballarat City Council on 18 April 2005. It is further deposed that an appraisal of the value of the half‑acre block and the residual two acres with the house has been received. The appraisal it is claimed values the half acre at $150,000 to $165,000 with full services. An estimate of the connection fee for these services is given as $15,000 to $20,000. In relation to the neighbour, the following appears:
“…
My neighbour, who wishes to purchase the1/2 acre subdivided portion, is now considering the appraisal and I anticipate hearing from him shortly on his intentions to proceed and sign a contract. In the event that my neighbour either does not wish to sign the contract or delays signing the contract the ½ acre allotment will immediately be placed with Booth & Lee for public sale. I am informed by them that due to a lack of vacant land in the city area of Ballarat a quick sale is highly likely. Settlement of any sale would take place upon registration of the plan of subdivision in 2 to 3 months time”.
In that second affidavit that the deponent claims that the funds from the sale of the half‑acre block would be sufficient to discharge the liability to the applicant. He claims to have contacted the existing mortgagee of Stockade Street and claims to have been advised that consent would be forthcoming to the subdivision and sale of the half‑acre block with retention of the existing mortgage over the remaining two acres only, subject to the value of the remaining two acres supporting their existing loan. He claims that the written appraisal obtained shows a value of the residual house and two acres at $360,000 to $380,000. That, he claims, should be sufficient to support the existing loan on the two‑acre house block only, but at most a small cash payment of the secured lender between $3,000 to $5,000 dollars would be required to bring the loan to value ratio to acceptable levels. It is noted that in relation to the property, that in the earlier affidavit reference was made to a mortgage of $270,000. The deponent does not refer to the current state of that mortgage account.
Further in the affidavit the deponent refers to what is described as The Lake Federation Resort. He claims the following in the affidavit:
“8. The Lake Federation Resort Project was formally approved by the Minister for Planning on 4 April 2005. Gazettal took place on 21 April 2005”.
He further states that:
“9.The investment arm of billionaire businessman Richard Pratt's group of companies, Thorney Properties, has an existing stake in the project. Now the project has received government approval they have the right to exercise an option to take up a larger share of the project. The option must be exercised within 20 business days of a valuation being obtained. Frank Knight Valuers prepared an interim valuation in February 2005 and their final valuation, although expected before now, is expected very shortly. Upon exercise of the option by the Pratt Group my family controlled trust, the Stockdale Investments Trust, will be entitled to a payment of approximately $180,000.
10.In addition to the payment received on the exercise of the option the Stockdale Investment Trust will, after the exercise of the option, retain 9% of the equity in the Lake Federation Resort. The project includes the right to build over 3,000 houses in Ballarat. Ballarat is Victoria's third biggest city and is a city experiencing strong population growth. With an interim project valuation of $50 million and final valuation expected of $55 million the value of this equity will be $3,780,000. I am unable to use this equity to raise funds at the present time as it is a term of the option agreement that none of the shares in the project be encumbered prior to the option being exercised. Once the option is exercised the Stockdale Investment Trust is free to deal with its share as it sees fit”.
Exhibits are provided in the affidavit which evidence the ownership of The Lake Federation Resort by the debtor's family controlled trust and ownership by the Pratt Group of their stake of the resort and the option agreement with that group.
In relation to the issue of rent, the second affidavit of the debtor provides the following. He refers to exhibit BM1 of the previous affidavit and the fact that included in his liabilities is an amount of $60,000 owed for rent to Bartrop Real Estate. He deposes:
“This relates to the occupation of my business premises which are in the same building as those real estate agents. They are not pressing for payment. This liability has only built up due to the necessity for me to devote my time and attention to the Lake Federation Project which has had a temporary detrimental effect on the cash flow of my business as a solicitor. However the assets of that business, referred to at paragraph 9 of my previous affidavit, still substantially exceed the rental outstanding”.
It is on that basis that the debtor seeks then a further adjournment of three months. He has otherwise relied upon the affidavit of Gaenor Lynne McCormick, who, as I indicated, has sworn an affidavit on 6 May 2005. In that affidavit Mrs McCormick deposes that she is the owner of lot 2 on the proposed plan of subdivision of the property at 40 Stockade Street, Ballarat. She states the following:
“2.I own 50% of the ordinary units in the Stockade Investments Trust and thus have 50% of the voting rights. My husband, Bryan McCormick, holds the other 50% of ordinary units and voting rights. I expect a payment of approximately $180,000 to be paid to the Stockade Investment Trust from the Pratt Group (Thorney).
(3) I authorise the following:
(a)The proceeds of the sale of Lot 2 at 40 Stockade Street, Ballarat be made available to my husband Bryan McCormick.
(b)The $180,000 to be paid to the Stockade Investments Trust be made available to my husband Bryan McCormick. I will exercise my voting rights as a 50% unit holder to ensure this payment”.
It is submitted for and on behalf of the debtor that that affidavit material to which I have referred to in some detail provides a satisfactory basis upon which this Court should exercise its discretion to grant an adjournment yet again of the creditor’s petition. It is argued that there is no prejudice to the petitioning creditor and further argued that in the circumstances that affidavit material provides the basis upon which it could readily be claimed that within two to three months assets of the kind described in the affidavit material will be realised to the extent that they would easily cover the amount of the debt claimed in the petition.
The petitioning creditor opposes the application for adjournment and has urged the Court to proceed to make a sequestration order based upon the affidavit material and upon the petition. It is noted that the judgment in this matter was obtained in the County Court as far back as 27 November 2003 and, further, that the first adjournment granted on

1 March 2005 was effectively granted for similar reasons to the grounds now relied upon by the debtor. It is argued that in considering the issue of whether or not the petition should be adjourned, that the Court should have regard to the task of a Court in dealing with a petition; that is, it is not a debt recovery process but a process of dealing with personal insolvency. It is submitted that on the material currently before the Court the debtor is clearly insolvent and that otherwise the requirements of s.52 of the Bankruptcy Act 1966 have been met.
It is further submitted that there are vague assertions as to the time frame within which the funds may or may not be obtained. First, in relation to the proposed sale to the neighbour, there is insufficient evidence, it is submitted, in relation to the neighbour agreeing to purchase the property described. Further, there is insufficient evidence of the Pratt Group seeking to exercise the option which would result in the funds being available from The Lake Federation Resort, and it is otherwise argued that in any event other debts including the $60,000 owed to the real estate agent for the reasons set out in the debtor's affidavit indicate in clear terms insolvency of the debtor.
In my view, the Court clearly has a discretion in matters of this kind in considering whether or not to grant an adjournment. An adjournment has already been granted in a matter which commenced in December 2004 and where the previous adjournment was for a significant period, from 1 March 2005 to 9 May 2005. It is also significant to note, in my view, that the role of the Court in an application of this kind is not simply to facilitate a debt recovery process or to necessarily ensure that ultimately if the circumstances unfold in the manner predicted by the debtor and his wife, that the amount claimed by the current petitioning creditor will be met necessarily out of that process. This is not a case, in my view, where a proper assessment of the scenario referred to in the affidavit material of the debtor, where one could confidently predict realisation of assets currently within the control and power of the debtor in a manner which would within a reasonable time frame and with a degree of certainty result in a conversion of assets readily available to the debtor. I conclude from the material before me that the debtor has at all relevant times and is currently insolvent.
The proposal in relation to the sale of the property, having regard to the mortgage over the property and the uncertainties in relation to that sale together with the uncertainty in relation to any exercise of options in relation to The Lake Federation Resort, at best would lead to a conclusion that the proposal is one which contains a significant degree of optimism on the part of the debtor.
I accept without reservation that bankruptcy for this debtor would be of a significant prejudice having regard to his current occupation and the position he holds as a sole practitioner of a legal firm. However, that alone is not sufficient to provide a basis upon which this Court should exercise its discretion to grant an adjournment. The management of personal insolvency is a matter which must be managed not simply in the interests of the petitioning creditor, but in the interests of other creditors of the debtor and in the interests of controlling the affairs of the debtor who, in my view, appears clearly on the material currently before me to be insolvent.
In my view, it would not be a correct exercise of discretion, having regard to those findings and having regard to the appropriate law to be applied in matters of this kind, for this Court to allow the adjournment. The adjournment is refused.
I will otherwise adjourn the petition for further hearing at 2.15 pm on Wednesday, 11 May 2005.

I certify that the preceding twenty-five (25) paragraphs are a true copy of the reasons for judgment of McInnis FM

Associate:

Date: 9 May 2005