DCT v Summerville - [2009] FMCA 993

FEDERAL MAGISTRATES COURT OF AUSTRALIA

DCT v SUMMERVILLE

[2009] FMCA 993

BANKRUPTCY – Creditor’s petition – solvency – contested proceedings in State Court requiring determination before money available to debtor – whether other sufficient cause not to sequestrate debtor’s estate.

Bankruptcy Act 1966, s.52

Sandell and Porter (1966) 115CLR 666

Applicant:

DEPUTY COMMISSIONER OF TAXATION

Respondent:

BRENT DOUGLAS SUMMERVILLE

File Number:

BRG 347 of 2009

Judgment of:

Wilson FM

Hearing date:

27 August 2009

Date of Last Submission:

27 August 2009

Delivered at:

Brisbane

Delivered on:

27 August 2009

REPRESENTATION

Counsel for the Applicant:

N/A

Solicitors for the Applicant:

ATO, Legal Services Branch

Counsel for the Respondent:

Ms Skennar

Solicitors for the Respondent:

Morgan Conley Solicitors

ORDERS

That the hearing of the creditor’s petition be adjourned to 9:30am on 6 November 2009 in the Federal Magistrates Court in Brisbane.
That costs of and incidental to today be reserved.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
BRISBANE

BRG 347 of 2009

DEPUTY COMMISSIONER OF TAXATION

Applicant

And

BRENT DOUGLAS SUMMERVILLE

Respondent

REASONS FOR JUDGMENT

This is an application by the Deputy Commissioner of Taxation for a sequestration order against the estate of the respondent.
On 26 August 2009 a notice of opposition was filed. The only ground stated in it is that the respondent is solvent. That enlivens reliance upon s.52(2)(a) Bankruptcy Act 1966 (“the Act”).
In support of that contention the respondent relies upon the affidavit of his accountant, Mr McCauley. The solicitor for the applicant creditor has not sought to challenge nor object to Mr McCauley's evidence.
The Deputy Commissioner has previously consented to the adjournment of its petition to allow the debtor to put on evidence as to his solvency. For reasons that I will shortly explain the debtor seeks a further adjournment of the petition. That is opposed by the Deputy Commissioner.
The proceedings against the debtor have not been unduly prolongated. The judgment upon which the Deputy Commissioner relies was entered in the District Court of Queensland on 3 February 2009. The bankruptcy notice was served on the respondent on 26 April 2009 and the creditor's petition was served on 7 June 2009.
The debt in respect of which the Deputy Commissioner seeks to sequestrate the estate of the debtor is some $82,974.41, which continues to accumulate interest at the rate charged from time to time by the Deputy Commissioner.
The affidavit of Mr McCauley, upon which the respondent relies, sets out as a schedule the respondent's assets and liabilities. The accountant swears to a surplus of assets over liabilities of $430,447.50. The accuracy of that figure depends upon two important matters. The first is that the debt to the petitioning creditor is recorded at $78,814.43, which is less than the amount that the Deputy Commissioner contends for. More importantly, that the value of a property, at Ebenezer Road, Ebenezer, is currently stated at $810,000.
The position of the debtor, as I understand the affidavit evidence of Mr McCauley, is that he has sufficient equity in that property to meet all of his debts as and when they fall due. The schedule attached to Mr McCauley’s affidavit records that there are, apart from the Deputy Commissioner, very modest current liabilities and significant mortgage liabilities, although there is no evidence that those mortgages are currently in default.
In Sandell and Porter (1966) 115CLR 666 at 670, Barwick CJ said:
“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, using 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 affairs has arrived is a question for the court and not one 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.”
Since that decision the terms of s.52(2)(a) of the Act have been amended. The statute now speaks in terms of an ability to pay debts, not by reference to when they fall due.
Provided the applicant has sufficient assets the position of the Deputy Commissioner is protected if the matter is adjourned insofar as interest continues to accumulate on its judgment debt.
The property at Ebenezer which is said to be the source of the respondent's ability to pay his debts is, however, the subject of legal proceedings. The debtor and another have been sued in the Supreme Court of Queensland by Evertop Developments Pty Limited and Lu Yang. Ms Skennar, who appears for the debtor, has informed me that those proceedings concern an application by the plaintiffs for specific performance of a contract for sale of the subject property. The plaintiffs have lodged a caveat against the property which prevents the respondent debtor from further borrowing against it.
Mr McCauley in his affidavit refers to the debtor having secured approval from the Commonwealth Bank of Australia to borrow further funds to pay out all of the respondent's debts, including that to the applicant creditor. The presence of the caveat has prevented the further monies being advanced.
What is a reasonable time for the payment of the applicant's debts is a question of fact to be resolved in the circumstances of this particular case. The respondent debtor and his co-defendant in the Supreme Court proceedings terminated a contract for the sale of the subject property. If they properly did so the debtor remains the owner of that property and will have sufficient equity available to him to meet the applicant's debt. If the proceedings are successful against him, the property will be sold and, after the discharge of the mortgage liabilities, there will be surplus proceeds which can be used to pay out the applicant creditor.
That is, whichever way the Supreme Court proceedings are resolved there will be sufficient moneys to meet the applicant's debt. The real question for my determination is whether the delay in the determination of those proceedings is sufficient cause to put the respondent's estate into bankruptcy.
As Ms Skennar submitted, the bankruptcy of the respondent may lead to difficulties in the Supreme Court proceedings. The respondent's trustee in bankruptcy will have to decide whether or not to pursue the proceedings. Whether the respondent is bankrupt may be a relevant consideration for a court exercising jurisdiction to grant specific performance, or not to grant specific performance, and there may be other considerations.
Reference to those matters reflects that putting the respondent into bankruptcy now is unlikely to yield payment of the applicant creditor's debt any quicker than allowing resolution of the Supreme Court proceedings.
The applicant creditor's position must, however, be protected. If I dismiss the petition now, then the respondent debtor may, as the solicitor for the creditor submitted, incur further debts which prejudices the applicant creditor's position in bankruptcy. There may be transactions about which the court does not know which make the commission date of the act of bankruptcy relevant. It is important that the proceedings in the Supreme Court be resolved as expeditiously as possible.
In the circumstances, although the evidence as to solvency is presently unchallenged, I have concerns as to the time that the debtor will require to meet payment of the debt. He ought not be permitted to unduly prolong the Supreme Court proceedings. I think that to properly protect the applicant creditor the better course is to adjourn the petition for a sufficient period of time to enable both parties to be fully informed as to the likely duration of those proceedings and of any outcome to them.
It seems to me that the respondent debtor's proposed application for summary judgment ought bring matters to a head or at least expedite the final resolution of the matter in the Supreme Court. Ms Skennar, on behalf of the debtor, has indicated the respondent debtor's willingness to seek a certification of the matter as a commercial dispute, which will afford a speedier resolution of it in the Supreme Court.
I propose, therefore, to adjourn the hearing of the creditor’s petition to enable evidence to be put before this Court as to the likely timing of receipt by the respondent of the monies needed by him to meet the applicant’s debt.

I certify that the preceding twenty-one (21) paragraphs are a true copy of the reasons for judgment of Wilson FM

Associate: Lynnette Chin

Date: 8 October 2009