Deputy Commissioner of Taxation v Notton - [2008] FMCA 1613

FEDERAL MAGISTRATES COURT OF AUSTRALIA

DEPUTY COMMISSIONER OF TAXATION v NOTTON

[2008] FMCA 1613

BANKRUPTCY – Creditor’s petition – adjournment application – sequestration order.

Bankruptcy Act 1966 (Cth), ss.33, 43, 44, 52

Abignano; in the matter of Abignano v Wenkart [1999] FCA 1695
Auspine Ltd v Construction, Forestry, Mining & Energy Union [2000] FCA 500
Re Bowen; Ex parte Debtor [1924] B & CR 32
ReGrahame; Ex parte White (1940) 11 ABC 141
Re Martyn; Ex parte Capes (1929) 1 ABC 176
Re Sarina; Ex parte Wollondilly Shire Council (1980) 43 FLR 163
Re Svir; Ex parte Deputy Commissioner of Taxation (1998) 83 FCR 314
Sandell v Porter and Another (1966) 115 CLR 666

Applicant:

DEPUTY COMMISSIONER OF TAXATION

Respondent:

MARK RICHARD NOTTON

File Number:

SYG 1448 of 2008

Judgment of:

Barnes FM

Hearing date:

18 November 2008

Delivered at:

Sydney

Delivered on:

18 November 2008

REPRESENTATION

Solicitors for the Applicant:

Legal Services Branch, Australian Taxation Office

Solicitors for the Respondent:

Burridge and Legg

ORDERS

That a Sequestration Order be made against the estate of Mark Richard Notton.
That the Applicant Creditor’s costs of $800 be paid from the estate of the Respondent Debtor in accordance with the Bankruptcy Act 1966.
That a copy of this sequestration order be given to the Official Receiver in Sydney within two (2) days.
The Court notes that the date of the act of bankruptcy is 18 December 2007.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
SYDNEY

SYG 1448 of 2008

DEPUTY COMMISSIONER OF TAXATION

Applicant

And

MARK RICHARD NOTTON

Respondent

REASONS FOR JUDGMENT

(Revised from transcript

On 5 June 2008 the petitioning creditor presented and filed a creditor's petition seeking that a sequestration order be made against the estate of Mark Richard Notton. The petition is said to be based on the failure by the debtor to comply on or before 18 December 2007 with a bankruptcy notice issued on 8 November 2007 and served on 27 November 2007.
The bankruptcy notice required the debtor to pay the creditor the amount of $37,847.90. This was made up of an amount of $109,967.91 due under a final judgment obtained in the District Court of New South Wales at Sydney on 18 May 2007 (a copy of which is attached to the bankruptcy notice) together with interest of $5,379.99 less credits and/or payments in the sum of $77,500 on the balance of the judgment up to 3 November 2007.
The respondent debtor opposed the creditor's petition. The notice of opposition contains two grounds. The first is that: “The respondent debtor has an interest in a property at 23 … Road, North Narrabeen which it is proposed to sell to satisfy the debt.” The second is that: “Donna Mitchell Montrose offers to contribute property belonging to her to enable the respondent to satisfy the debt.” Ms Montrose and the debtor own the North Narrabeen property as joint tenants.
I sought clarification from the solicitor for the respondent whether an adjournment was sought or whether it was submitted that the petition should be dismissed under s.52(2) of the Bankruptcy Act 1966 (Cth). He indicated that what was sought was that these matters should be taken into account by the Court in exercising its discretion not to make a sequestration order, by way of granting an adjournment, in order to enable time for repayment of the amount due to the creditor. This prospect, it was said, was consistent with the undertaking of Ms Montrose, the former partner of the debtor, to make funds available when she received the proceeds of a Workers Compensation Commission determination and the indication in the affidavits of Ms Montrose and Mr Notton that he and Ms Montrose had agreed that if insufficient funds were raised on her workers' compensation claim or by a further loan secured on their North Narrabeen property, then they would sell the property to satisfy the debt to the Deputy Commissioner of Taxation.
I am satisfied, on the basis of the affidavits relied on by the creditor, with the proof of the matters required under s.52(1) of the Bankruptcy Act1966 (Cth), including proof of the matters stated in the petition, service of the petition and the fact that the debt on which the petitioning creditor relies is still owing. There is no dispute that these requirements are met. Nor is it disputed that there has been an act of bankruptcy consisting of a failure to comply with the bankruptcy notice or that the requirements of ss.43 and 44 are met.
Notwithstanding proof of the matters in s.52(1) of the Act and the creditor's prime facie right to a sequestration order in those circumstances, the Court nonetheless has power to adjourn the hearing of a creditor's petition (see s.33 of the Bankruptcy Act, ReGrahame; Ex parte White (1940) 11 ABC 141 and Re Martyn; Ex parte Capes (1929) 1 ABC 176).
The debtor relied on the notice of opposition dated 7 October 2008, affidavits sworn by him on 9 September 2008 and 7 October 2008, by Donna Mitchell Montrose on 9 September 2008 and 7 October 2008 and by his solicitor David Robert Legg on 8 July 2008 and 19 August 2008. Despite orders being made at the last directions hearing on 8 October 2008 for the filing of further affidavits by the debtor, no such further evidence is before the Court.
Hence the evidence before the Court is in relation to attempts that were made by the debtor and Ms Montrose as at 7 October 2008 to obtain a fresh loan secured on the North Narrabeen property in order to meet the debtor’s liability to the creditor.
Tendered in Court today was a copy of an amended certificate of determination from the Workers Compensation Commission indicating that Ms Montrose and Coles Myer Limited had come to a resolution of issues in dispute and there had been a determination on 27 October 2008 for payment to Ms Montrose of the sum of $40,000. However there is no evidence before the Court as to whether the payment has occurred and if not when it might occur or that there has been any offer or tender of payment to the creditor by Ms Montrose.
Although there is evidence before the Court of past attempts by the debtor to raise funds by a fresh loan secured on the property at North Narrabeen, there is no evidence of any success in that regard. Indeed Ms Montrose’s affidavit evidence is that a conditional loan facility from Adelaide Bank approved on 14 August 2008 for $701,000 did not proceed as the valuation on the property was said to have “come in” at $800,000, the Bank would only lend a total of $640,000 and there were penalties to be paid to the existing lender. Ms Montrose’s evidence is that having regard to this advice she asked for further enquiries to be made to ascertain other options for finance. This evidence indicates that a loan of $640,000 would not have enabled the debtor to meet all of his liabilities. There is otherwise no evidence of the value of this property before the Court.
While there is evidence as at 7 October 2008 from Mr Notton and Ms Montrose that their intention at that time was that if insufficient funds were raised from the workers' compensation claim or on further mortgage they would sell the property at North Narrabeen to satisfy the debt to the Deputy Commissioner of Taxation, there is no further affidavit evidence in relation to this issue before the Court. I am asked by the solicitor for the respondent to infer that his client and Ms Montrose have not succeeded in their efforts to raise further finance secured on the property. I consider that it is appropriate to draw such an inference.
There is no evidence before me that any steps have been taken to sell the North Narrabeen property, such as one might have expected to be put before the Court had an agent been consulted and an agreement entered into or had there been any steps taken towards the sale of the property.
Moreover, there is no evidence before the Court as to the complete financial position of the debtor, for example in relation to whether there are any other debts and assets, other than the reference to the fact that there is an existing mortgage on the North Narrabeen property. Mr Legge. The solicitor for the debtor was instructed that as at 19 August 2008 the current amount of the first mortgage on the property was $594,000.
There is also evidence before the Court that the total amount owed by the debtor to the creditor, the Australian Taxation Office, has continued to increase. The affidavit of debt by Grace Lemeray sworn on 17 November 2008 indicates that the total amount owing by the debtor as at close of business on 16 November 2008 was $115,838.09. No monies have been recovered by the creditor from the debtor since the creditor’s petition was served.
In light of that material I considered first the respondent's application for an adjournment of the petition. The Court must satisfy itself that adjournment orders are appropriate and in the interests of the parties and also in the public interest. One of the circumstances in which the Court may grant such an adjournment is to give the debtor time to pay the debt, for example pursuant to an arrangement with the creditor.
In this case there is no evidence of any such arrangement with the creditor. Rather there is the limited evidence that I have referred to in relation to the situation of the debtor and his intention and that of his former partner as at September – October 2008.
I have had regard to the need to give due weight to the prima facie right of the petitioning creditor to obtain a sequestration order, to the number of occasions on which this matter has been before the Court since July 2008, the time which the debtor has had to make arrangements and to the importance of avoiding or minimising delay once bankruptcy proceedings have been instituted, notwithstanding that the creditor's petition in this instance has not reached the point of expiration in the absence of an order extending its life under s.52(5) (see Abignano; in the matter of Abignano v Wenkart [1999] FCA 1695). I have also had regard to the fact that where a debtor applies for an adjournment of a petition the Court should be put in possession of all possible information as to the position of the debtor and the circumstances or negotiations which it is said will result in obtaining funds for the payment of the debts (see Re Bowen; Ex parte Debtor [1924] B & CR 32).That has not occurred in this case.
Notwithstanding the orders made on 8 October 2008 and the opportunity for the debtor to file further affidavit evidence had anything happened to change the position as it stood at 7 October 2008, there is no such evidence. The evidence of the debtor does not purport to be a full disclosure of his financial position, other than indicating co-ownership of a property with Ms Montrose and attempts to obtain further funds which have not come to fruition. There is very little evidence of Ms Montrose’s financial position before the Court. I have also had regard to the circumstance in relation to the workers' compensation entitlement of Ms Montrose and the absence of current evidence as to whether she has received her entitlement and whether Ms Montrose, who I am told from the Bar table is separated from the debtor, still intends to make a payment to the creditor. In all the circumstances I am not persuaded that the fact that she now has a present entitlement (whether or not she has received it) is such as to warrant an adjournment of the petition in relation to Mr Notton.
The debtor referred to Re Svir; Ex parte Deputy Commissioner of Taxation (1998) 83 FCR 314. However there is no evidence before the Court that the making of a sequestration order would inhibit Mr Notton's ability to obtain funds from a third party (such as Ms Montrose) in the sense considered in Svir where the debtor's mother intended to obtain a loan to provide funds and the debtor was required to guarantee the loan. The lender in Svir was not prepared to make a further instalment if the creditor's petition proceeded to a sequestration order. That is not the position in this case.
On balance I am not persuaded that it is appropriate to adjourn the petition as sought by the solicitor for the respondent. It is then necessary for me to consider the matters in s.52(2) of the Bankruptcy Act. I have indicated that I am satisfied with proof of the matters in s.52(1) of the Act. I am not satisfied by the debtor that he is able to pay his debts. The respondent debtor bears the onus under s.52(2) (see Auspine Ltd v Construction, Forestry, Mining & Energy Union [2000] FCA 500 per Hely J at [17]). As Hely J stated, it is not sufficient for the respondent simply to establish that he has assets which exceed his liabilities in value. It must also be established that the assets are available to be realised and that they are capable of ready realisation.
It is the case that, as Barwick CJ and McTiernan and Windeyer JJ stated in Sandell v Porter and Another (1966) 115 CLR 666, “the debtor's own moneys are not limited to his cash resources immediately available.” However as Sandell v Porter also illustrates, the debtor’s money’s 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 …” (at 670).
There is no evidence that the North Narrabeen property in this case is for sale or as to the amount of equity available to the debtor were it to be sold. There is somewhat unsatisfactory evidence in relation to its value. Nonetheless, taking that at its highest, it appears from the evidence of Ms Montrose that the amount that was to be available based on the property's value would not have been sufficient to meet the liability to the existing mortgagee and the Australian Taxation Office. I cannot be satisfied on the material before me that were the property to be sold the amount of the equity available to the respondent from his share of the sale of such property would put him in a position where he was able to pay his debts under s.52(2). In that respect I note that the property is jointly owned with Ms Montrose. Even if Ms Montrose remained ready to contribute her equity in the property to pay out the debt to the applicant as she had indicated, there is no evidence to establish that this asset is capable of ready realisation and no evidence of the total position of the debtor in relation to any other liabilities, or indeed, assets. In the absence of such evidence I am not satisfied under s.52(2)(a) that the debtor is able to pay his debts.
I have borne in mind that the test as set out in Re Sarina; Ex parte Wollondilly Shire Council (1980) 43 FLR 163 refers to a debtor being in a position to pay all the debts he or she owes within a reasonable time. As indicated, I cannot be satisfied that the debtor has met the onus to satisfy me of this in the circumstances of this case.
I have also considered whether for other sufficient cause a sequestration order ought not to be made. In Svir Burchett J took into account the need for the Court to keep in mind the interests of individual parties before it and also the public interest which may be adversely affected by what his Honour described (at 317) as the “propping up” of insolvency. In that case his Honour found that that factor did not provide a bar to the exercise of the discretion not to make a sequestration order that it would provide in many cases as, (other than the petitioning creditor), the debtor in question had a paucity of creditors who would be likely to have a reason for concern. As indicated earlier, on the material before me, I am not able to take the same approach and to reach the same state of satisfaction in this case. In any event as his Honour indicated, that merely removes the bar, it does not provide a positive ground constituting other sufficient cause why a sequestration order ought not to be made.
In Svir Burchett J found of importance the debtor's willingness to give an irrevocable authority making available to the petitioning creditor a large sum from the proceeds of a claim he had for damages for personal injury. This was money that would not otherwise have been available in his bankruptcy. The circumstances are not the same in this case. As discussed, Ms Montrose indicated a willingness as at October 2008 to make funds available. However there is no present evidence as to whether Ms Montrose has received the workers compensation funds and/or whether she remains willing to pay such funds to the creditor. She had not done so. This not a case in which there is an offer of a third party to make funds available in circumstances which would not be able to come to fruition should the sequestration order be made as considered in Svir. In any event, even if Ms Montrose was still willing to make the worker’s compensation entitlement available and also to contribute her share of the net proceeds were the North Narrabeen property to be sold, there is no evidence that steps to put such a sale in place are in fact under way or that this would realise a net amount sufficient to meet the debtor’s liability.
On the evidence before me I am not satisfied that for other sufficient cause a sequestration order ought not to be made such that the petition ought to be dismissed. I am satisfied that the debtor committed the act of bankruptcy consisting of non-compliance with the bankruptcy notice alleged in the petition. I note that the date of the act of bankruptcy is 28 December 2007. I am satisfied with proof of the other matters required by s.52 of the Bankruptcy Act. I make a sequestration order against the estate of Mark Richard Notton.
RECORDED : NOT TRANSCRIBED

I certify that the preceding twenty-six (26) paragraphs are a true copy of the reasons for judgment of Barnes FM

Associate:

Date: 2 December 2008