Demarco, in the matter of Demarco v Pascoe
[2000] FCA 1771
•24 NOVEMBER 2000
FEDERAL COURT OF AUSTRALIA
Demarco, in the matter of Demarco v Pascoe [2000] FCA 1771
BANKRUPTCY – application for annulment of sequestration order
Bankruptcy Act 1966 (Cth) ss 77, 153A & 153B
Federal Court Rules O 77 r 4
IN THE MATTER OF THE BANKRUPT ESTATE OF GODFREY CHARLES DEMARCO
GODFREY CHARLES DEMARCO v SCOTT PASCOE (as Trustee of the Bankrupt Estate of Godfrey Demarco)
N 7675 OF 2000
EMMETT J
24 NOVEMBER 2000
SYDNEY
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
N 7675 OF 2000
IN THE MATTER OF THE BANKRUPT ESTATE OF GODFREY CHARLES DEMARCO
BETWEEN:
GODFREY CHARLES DEMARCO
APPLICANTAND:
SCOTT PASCOE (as Trustee of the Bankrupt
Estate of Godfrey Charles DeMarco)
RESPONDENTJUDGE:
EMMETT J
DATE OF ORDER:
24 NOVEMBER 2000
WHERE MADE:
SYDNEY
THE COURT ORDERS THAT:
1. The application be dismissed.
2.The bankrupt pay the costs of the respondent and of T & H Glass Holdings Pty Limited.
3.The bankrupt pay the costs Peter John William Huntington, Noga Maman & Luigi Antonio Madormo up to lunchtime today, 24 November 2000.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
N 7675 OF 2000
IN THE MATTER OF THE BANKRUPT ESTATE OF GODFREY CHARLES DEMARCO
BETWEEN:
GODFREY CHARLES DEMARCO
APPLICANTAND:
SCOTT PASCOE (As Trustee of the Bankrupt
Estate of Godfrey Charles DeMarco)
RESPONDENT
JUDGE:
EMMETT J
DATE:
24 NOVEMBER 2000
PLACE:
SYDNEY
REASONS FOR JUDGMENT
On 6 September 2000 I commenced the hearing of an application under s 153B of the Bankruptcy Act 1966 (Cth) for an order annulling the bankruptcy of Godfrey Charles Demarco. On that day, for the reasons that I then gave, I adjourned the matter part heard for further hearing on 19 October 2000. On 19 October, I adjourned the matter to 10 November 2000. By consent on that day, I adjourned the hearing of the application to today.
On the two occasions in October and November, I was informed that proposals were in train which were intended to realise assets that would enable the bankrupt to pay creditors. When the matter was called on today, I was informed that those proposals had not come to fruition and, accordingly, I resumed the hearing of the application.
The Trustee filed a report yesterday, 23 November 2000, concerning the affairs of Mr Demarco. That report was filed pursuant to O 77 r 44. During the course of the hearing today, the solicitor acting for Mr Demarco applied for an adjournment to enable further evidence to be adduced. However, on examination of the likely outcome of the adjournment, I concluded that there would be no utility in adjourning the matter further.
The application is made under s 153B, which would authorise the Court to make an order annulling the bankruptcy if it is satisfied that the sequestration order ought not to have been made. In my reasons for granting the adjournment on 6 September 2000, I outlined one basis upon which it was contended that the order ought not to have been made. That contention depended upon the form of the orders that were made by Lehane J. The form of the orders rather suggested that his Honour had in mind that if, within 21 days, the debt of the petitioning creditor was paid in full, the bankruptcy would in some way not proceed.
It may be that his Honour had in mind that an order might then be made under s 153B on a basis that is not entirely clear to me. It is possible that his Honour might have had in mind that the bankruptcy may be annulled pursuant to s 153A(1) which provides that, if the Trustee is satisfied that all the bankrupt’s debts have been paid in full, the bankruptcy is annulled ipso jure in effect on the date on which the last payment was made.
If there were only one creditor, being the petitioning creditor, and that debt was paid within the 21 days of the stay ordered by Lehane J, s 153A(1) may well have had the effect of annulling the bankruptcy. In any event, it has not been suggested that s 153A(1) is applicable. Although the petitioning creditor’s debt was paid, it is clear that there were at least several other debts that were actually payable on the date of the sequestration order that had not been paid and have not yet been paid.
The evidence before me establishes that it is more likely than not that, as at the date of the sequestration order, creditors to whom debts were actually due and payable were entitled to a sum in excess of $64,000. On the other hand, as at that date, Mr Demarco had no liquid assets that enabled him to make payment of those debts. It appears to be clear, therefore, that, as at the date of the sequestration order, Mr Demarco was not in a position to pay his debts from his own funds, or funds that might be available to him, as and when those debts fell due. In that sense, Mr Demarco was insolvent at that time. There has been no suggestion that Mr Demarco had not committed an act of bankruptcy. In the circumstances, I am not satisfied that the sequestration order ought not to have been made.
It is likely that there was not before Lehane J the evidence that is now before me concerning the financial affairs of Mr Demarco as at the date of the sequestration order. It is a matter of speculation therefore as to what Lehane J would have done had that information been before him. It may be that, as a matter of discretion, his Honour would have adjourned the hearing of the petition. As I said, I do not know. It is a matter for speculation. I do not see, however, how it can be said that, in the light of the evidence before me, the order ought not to have been made. In any event, there are other considerations that lead me to the conclusion that the application should be refused.
The conduct of Mr Demarco has not been entirely satisfactory. He has not been, on the evidence before me, entirely frank in his disclosure to the Trustee of his liabilities. In his statement of affairs, Mr Demarco disclosed an amount of $11,025 as owing to T & H Glass Holdings Pty Limited. On 7 September 2000, however, the Trustee received a claim for legal costs pursuant to a costs order made against Mr Demarco. That claim was in the sum of $68,906 and was not disclosed in the statement of affairs. The claim has not yet been taxed and may not be admitted in full. However, it seems likely that the claim that will be admitted will be significantly greater than the sum disclosed in the statement of affairs. There is no suggestion that Mr Demarco was not aware of the existence of the costs order when completing the statement of affairs, since the bill had been forwarded to his solicitors in July 2000.
On 21 September 2000 the solicitor for a Mr Madormo informed the Trustee that Mr Madormo had a legal costs claim for an amount of approximately $30,000 against Mr Demarco. On 18 October 2000 an itemised bill in the sum of $21,038 was received by the Trustee. While that claim may not have been quantified at the time when the statement of affairs was prepared, there can be no doubt that Mr Demarco was aware of the costs order. However the existence of the potential liability was not disclosed in the statement of affairs.
In his statement of affairs Mr Demarco disclosed a claim against Noga Maman as an asset in the sum of $63,560. However, Mr Demarco failed to disclose that, although proceedings had been commenced for recovery of that sum, a cross-claim had been filed in those proceedings seeking $150,000. I cannot, of course, form any view as to the likelihood of that cross-claim succeeding. Nevertheless the inclusion of the claim, coupled with submission of an amended statement of liquidated claim, without disclosing the cross-claim, suggests lack of frankness on the part of Mr Demarco.
It now seems to be common ground that Mr Demarco has not lodged income tax returns for any year after the year ended 30 June 1992. That fact was not disclosed to the Trustee. In addition, Mr Demarco was registered as a group tax employer for his business “Demarco’s Realty”. He has not made any group tax instalments since July 1996. Because of the absence of any returns and non-remittance of group tax vouchers the Australian Taxation Office is unable to determine the amount of any liability of Mr Demarco.
No liability for tax was disclosed in the statement of affairs. Recently, however, the Trustee has been furnished with copies of draft tax returns for some of the years in question, the Trustee’s calculation of liability for primary tax shows an amount in excess of $50,000 payable for tax. That amount fails to take account of tax payable in respect of years for which no draft tax returns have been prepared. Nor does that figure take account of interest or penalties, which would almost certainly be payable by Mr Demarco.
The Trustee’s report indicates that Mr Demarco has realisable assets which are likely to produce the sum of $340,779. The Trustee's report also discloses liabilities in the sum of $273,716 leaving a surplus of $67,063. However, the surplus fails to take account of several other prospective liabilities of Mr Demarco. First, there is the claim by Nogga Naman; second, there is the possible liability to the Commissioner of Taxation; third, there is evidence before me that the amount that was accepted by the petitioning creditor was not necessarily the amount of the total debt due to the petitioning creditor, Australia and New Zealand Banking Group Limited (a draft deed of release that had been prepared on behalf of the Bank contained a recital of indebtedness far in excess of the amount that was actually paid); fourth, there was also evidence before me of a further debt of some $50,000 owing by Mr Demarco. It has been suggested that part of that debt may have been discharged in kind by the performance of work by Mr Demarco. There is however, no evidence before me of the nature of that work or its quantification.
The Trustee’s report indicated that as at the date of that report remuneration and disbursements payable to the Trustee exceeded $17,000. That amount, of course, would increase as time passes. There are also likely to be fees payable to those who have appeared on behalf of Mr Demarco in these proceedings. Again, there is no evidence of the quantum of those fees or the arrangements that have been made for their payment.
All of that evidence leads me to the conclusion that it is more likely than not that the amount of Mr Demarco’s liabilities as at today exceeds the value of his realisable assets. The interest of the public and the creditors of Mr Demarco must be taken into account in considering the making of an order under section 153B. The evidence before me as to Mr Demarco’s financial position is confused and is not in a satisfactory state. I would have expected a debtor who comes to the Court seeking an annulment would be careful to ensure that full and frank disclosure was made to the Court of all of the circumstances relating to his financial affairs. The Trustee, however, considers that Mr Demarco has established a pattern of disclosing his debts only after the Trustee has become aware of them through his own inquiries.
Further the Trustee is of the view that the conduct of Mr Demarco has constituted a breach of s 77 of the Bankruptcy Act1966 (Cth). Section 77 provides that unless excused by the Trustee or other sufficient cause the bankrupt must give such information about any of the bankrupt’s conduct and examinable affairs as the Trustee requires; must give to the Trustee all books that are in possession of the bankrupt and relate to any of his or her examinable affairs; and must assist the Trustee to the utmost of his or her power in the administration of the estate. The circumstances described above are capable of falling within those provisions.
In all of the circumstances, even if I were satisfied that the order ought not to have been made, I would not be prepared to annul the bankruptcy. Accordingly, I propose to dismiss the application. I will order the bankrupt to pay the costs of T & H Glass Holdings Pty Limited and of the Trustee. I will also order the bankrupt to pay the costs of Peter John William Huntington, Noga Maman and Luigi Antonio Madormo up to lunchtime today.
I certify that the preceding eighteen (18) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Emmett. Associate:
Dated: 6 December 2000
Solicitor for the Applicant: Mr S Golledge for the Argyle Partnership Counsel for the Respondent: Mr M J Stevens Solicitor for the Respondent: Gadens Lawyers Counsel for T & H Glass Holdings and Tibor Thomas Glass Mr M Young Solicitor for T & H Glass Holdings and Tibor Thomas Glass Warwick Keay & Associates Counsel for Noga Maman Mr R L Butler Solicitor for Noga Maman Doyles Construction Lawyers Solicitor for Peter William Huntington Mr J F Merewether for Roxburgh & Co Solicitor for Luigi Antonio Madormo Mr J Hancock for Hancocks Solicitors Date of Hearing: 24 November 2000 Date of Judgment: 24 November 2000
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