Deputy Commissioner of Taxation v Somerton

[2011] FMCA 592

FEDERAL MAGISTRATES COURT OF AUSTRALIA

DEPUTY COMMISSIONER OF TAXATION v SOMERTON [2011] FMCA 592

BANKRUPTCY – Creditor’s petition – whether the proceedings should be adjourned where Court satisfied of the matters in s.52(1) of the Bankruptcy Act 1966 – discretion to make a sequestration order.

Bankruptcy Act 1966 (Cth), ss.52, 139D

Abignano v Wenkart [1999] FCA 801
Cain v Whyte (1933) 48 CLR 639; [1932] HCA 6
Deputy Commissioner of Taxation v Somerton [2011] FMCA 252
In Re Field (A Debtor) [1978] Ch 371
Inspector-General in Bankruptcy v Bradshaw [2006] FCA 22
Radich v Bank of New Zealand (1993) 116 ALR 676; [1993] FCA 450
Re Betts; Ex parte Betts (1897) 1QB 50
Re Bowen; Ex parte Debtor [1924] B & CR 32
Re Patrick Michael Darcey v The Preterm Foundation Appeal [1988] FCA 165
Re Svir; Ex parte Commissioner of Taxation (1998) FCR 314
Rotstein & Associates v Slaveski (2010) 8 ABC(NS) 200; [2010] FCA 493
Shaw v The Queen (1952) 85 CLR 365; [1952] HCA 18

Applicant: DEPUTY COMMISSIONER OF TAXATION

Respondent: RICHARD MARK SOMERTON

File Number: SYG 2319 of 2010

Judgment of: Barnes FM

Hearing dates: 30 June 2011 & 14 July 2011

Delivered at: Sydney

Delivered on: 14 July 2011

REPRESENTATION

Solicitors for the Applicant: Hunt & Hunt

Counsel for the Respondent: R.W. Tregenza

Solicitors for the Respondent: David Begg & Associates

ORDERS

1. A sequestration order be made against the estate of Richard Mark Somerton.

2. The applicant creditor’s costs (including any reserved costs) be taxed in accordance with the Federal Court Rules and paid from the estate of the respondent debtor in accordance with the Bankruptcy Act 1966 (Cth).

3. Under the Bankruptcy Regulations a copy of these orders be given to the Official Receiver in Sydney within two (2) days by the applicant creditor.

THE COURT NOTES THAT:

1. The date of the act of bankruptcy is 4 August 2010.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA
AT SYDNEY

SYG 2319 of 2010

DEPUTY COMMISSIONER OF TAXATION

Applicant

And

RICHARD MARK SOMERTON

Respondent

REASONS FOR JUDGMENT

(Revised from transcript)

1. The applicant filed and presented a creditor’s petition on 27 October 2010.  The matter was heard on 30 June 2011. Judgment was reserved.  On 11 July 2011, Mr Somerton, the respondent debtor, filed an interim application and a supporting affidavit in which leave was sought to re-open his case. I heard that interim application today.  Leave was sought on the basis that material annexed to the affidavit of Mr Somerton sworn on 8 July 2011 and an Exhibit tendered today was in essence fresh evidence or came into existence after the hearing in this matter, except insofar as one of the documents related to a company resolution passed the day before the hearing. 

2. The court has a discretion as to whether or not it should grant leave to re-open a case.  Counsel for the debtor relied on the authority of Shaw v The Queen (1952) 85 CLR 365; [1952] HCA 18, albeit that case concerned re-opening the Crown case in a criminal law matter after close of the case for the defence. It was submitted that it was clear from Shaw that the court could re-open a case and that it should do so in exceptional circumstances.  It was contended that there were such circumstances in this case, given that there was fresh evidence of further steps that had been taken in relation to Mr Somerton’s efforts to obtain assets in order to meet his indebtedness. 

3. There are many authorities in relation to reopening cases in the area of civil litigation.  It is not in dispute that leave may be given (see Inspector-General in Bankruptcy v Bradshaw [2006] FCA 22) where there is fresh evidence, an inadvertent error or a mistaken apprehension of the facts or of the law. The overriding principle is clear: it is whether the interests of justice are better served by allowing or rejecting the application for leave to re-open.

4. The evidence in question is fresh evidence.  Most of it arose after the time of the hearing, albeit it is not perhaps entirely surprising that some of it has emerged, in particular resolutions by the directors of Vanstra as trustee of the Artskyd Family Trust discussed below.  It was foreshadowed on the last occasion that it was anticipated that a share sale agreement, that had at that time been signed by some but not all of the parties to the agreement, would be signed for B Nominees Pty Limited in the near future.  In addition, at the time of the hearing a draft valuation of a corporate asset was before the court. The fresh evidence includes a final valuation. 

5. In my view, in the particular circumstances of this case it is appropriate to grant leave to the debtor to re-open his case so that the court can have before it all the material that the debtor seeks rely on in relation to the creditor’s petition.  On the hearing of a creditor’s petition the court must bear in mind the public interest, as well as the interests of creditors.  Where fresh matters arise after a hearing of the particular nature that have arisen in this case it is appropriate that the court have before it all the evidence.  This is not a case in which any undue delay is occasioned by the grant of leave to re-open.  It is not a case in which there was any deliberate withholding of evidence at the time of the hearing in relation to these matters.  Indeed the possibility of signature of the share exchange agreement and further progress in other matters was clearly foreshadowed as likely to happen fairly soon after judgment was reserved.

6. The interim application came before the court at a time when the judgment in the substantive matter was reserved.  Having had the benefit of submissions from each party, I am now in a position to deliver my judgment in relation to the creditor’s petition on an ex tempore basis having regard to all the material that is now before the court. 

7. However I am not satisfied on the basis of the fresh material or indeed on all the material before the court that I should grant the adjournment sought by the debtor on the hearing of the creditor’s petition. 

8. On 27 October 2010 the applicant creditor, the Deputy Commissioner of Taxation, filed and presented a creditor’s petition seeking that a sequestration order be made against the estate of the respondent debtor, Richard Mark Somerton.  The creditor’s petition recited that the debtor owed the creditor the amount of $846,439.27, which was said to consist of an amount due under a final judgment obtained in the Supreme Court of New South Wales on 21 May 2010 inclusive of costs together with interest thereon under the Civil Procedure Rules (NSW) calculated to 2 June 2010. 

9. The creditor’s petition relies on an act of bankruptcy said to consist of a failure by Mr Somerton on or before 4 August 2010 to comply with the requirements of a bankruptcy notice served on him on 14 July 2010 or to satisfy the court that he had a counter-claim, set-off or cross demand equal to or exceeding the amount of the judgment debt that he could not have set up in the action in which the judgment referred to in the bankruptcy notice was obtained. 

10. This matter has been before the court on a number of occasions.  It is necessary in light of the order that is sought by the respondent debtor to have regard to the history of the matter.  That is because, in essence, it is contended for the debtor that the appropriate order for the court to make having heard the creditor’s petition is that the petition be adjourned on the basis that the debtor will thus be able to come into funds in a manner that will enable him to meet his indebtedness to the petitioning creditor and also, apparently, to his other creditors. 

11. The petition first came before a Registrar of this court on 29 November 2010.  An initial adjournment was granted by consent until 13 December 2010 when, on the application of the debtor, the petition was adjourned until 7 February 2011.  On 7 February 2011 the matter was adjourned until 8 February 2011 on which day there was a further adjournment granted, apparently by consent, until 15 March 2011.  The debtor sought adjournments on the basis that additional time would enable him to satisfy the creditor’s debt. 

12. On 15 March 2011 the Registrar refused an application for further adjournment until 15 June 2011.  The matter was referred to me as the duty Federal Magistrate.  I made orders listing the matter for hearing on 13 April 2011.  I ordered that the respondent debtor file and serve a notice of opposition (as that had not been done) and that any further affidavit evidence be filed on or before 29 March 2011.  The applicant was given the opportunity to file evidence in reply. 

13. It was, however, foreshadowed on that day by counsel for the debtor that he intended to seek review by this court of the refusal by the Registrar to grant an adjournment.  Such a review application was filed on 18 March 2011.  That application was heard by Lloyd-Jones FM.  On 12 April 2011 his Honour granted an adjournment of the hearing of the creditor’s petition until 30 June 2011 (see Deputy Commissioner of Taxation v Somerton [2011] FMCA 252). His Honour’s judgment contains a helpful summary of the basis for the earlier adjournments as well as the basis for the adjournment granted until 30 June 2011.

14. In essence, the basis on which adjournments have been sought relates to Mr Somerton’s interest as a beneficiary in a family trust (the Artskyd Family Trust) which is said to hold an asset of some value through its interest in Energie Future NL (Energie).  There have been various attempts to realise some of that value in order to enable funds to be made available to the Family Trust from which a distribution could be made to Mr Somerton.  The precise basis on which such funds were to be raised has changed over time. 

15. It appears from the evidence before the court that Mr Somerton is a director of a number of companies.  Relevantly, he is a director of Energie and also of Vanstra Pty Limited (Vanstra).  Vanstra is trustee of the Artskyd Family Trust which is the discretionary family trust of which Mr Somerton and his children are beneficiaries, although it is not clear whether they are the only beneficiaries.

16. There is evidence from Mr Somerton that he has been negotiating proposals which, it was said, would lead to funds becoming available to Vanstra as trustee for the family trust which could then be distributed to him and enable him to pay his creditors.  The first such proposal, described in his affidavit of 26 November 2010, was said to be a proposal in relation to Energie Future Pty Limited (sic).  I do not know whether that meant to be a reference to Energie Future NL.  Nothing turns on this for present purposes.

17. The November 2010 proposal was that Energie would merge with a company known as Jade Commodities Limited (Jade) in an all scrip offer on the basis of heads of agreement or heads of terms as they are called, which at that stage Mr Somerton claimed he anticipated would be signed in the first week of December 2010.  What appears to be a draft of such agreement was annexed to his affidavit. According to Mr Somerton, he was to be a director of the board of the company upon the merger.  This proposal would involve Energie in seeking an initial public offering (an IPO) to raise the first stage of development funding on the basis that the merged entity would be floated on the London Stock Exchange in the first quarter of 2011.

18. Mr Somerton’s evidence was that the Family Trust’s interest in Energie after such merger would be valued at approximately $AU15 million.  It was also said that Vanstra, as trustee for the Family Trust, had an agreement with Sinom Holdings Co Limited (Sinom), that Sinom would purchase $US2.5 million worth of stock from the Trust upon the listing of the new company following the merger.  It was claimed that Vanstra had agreed that on completion of this sale it would transfer sufficient funds to Mr Somerton to enable him to pay all his outstanding creditors, on the proviso that he was not a bankrupt at that time.  Annexed to the November 2010 affidavit was a copy of what was said to be a resolution of Vanstra dated 19 November 2010 to that effect.  It is apparent from that document that the directors of Vanstra present at the meeting, at which such resolution was unanimously passed were Mr Somerton and Mr Eykstra. It is not clear if Mr Eykstra is the person elsewhere described as Mr Dykstra (for example in the subsequent Vanstra resolution annexed to Mr Somerton’s affidavit of 7 July 2011).  Mr Somerton is consistently described as one of the directors of Vanstra in the material before the court.   

19. As at November 2010 Mr Somerton’s evidence was that he anticipated he would be able to discharge the whole of the outstanding monies owing to the DCT and other creditors by 30 April 2011. 

20. By the time the matter came before Lloyd-Jones FM, Mr Somerton’s evidence was that while negotiations between Energie and Jade were progressing, the public listing of the proposed company was then scheduled for June 2011.  He also claimed that the previous negotiations between Vanstra and Sinom had been superseded by negotiations with another company, Asian Aim Incubator Company Limited (Asian Aim) which was said to have entered a share purchase agreement with Vanstra to purchase $2 million worth of stock in the merged company.  It was claimed that Vanstra would receive $2 million for the sale of the shares and on the basis of the previous resolution of the directors of Vanstra it was envisaged that they would resolve that following the completion of the transaction with Asian Aim, moneys received by Vanstra as trustee for the Artskyd Family Trust would be applied to Mr Somerton’s benefit to pay all outstanding creditors, provided that he was not bankrupt. 

21. Lloyd-Jones FM granted Mr Somerton an adjournment of the hearing of the creditor’s petition in order to allow the completion of the then proposed merger between Energie and Jade and to facilitate the proposed listing on the London Stock Exchange, on the basis that it was anticipated that this would yield up funds that would become available to Mr Somerton to pay the petitioning creditor and his other creditors.  An adjournment was granted to 30 June 2011. 

22. On 30 June 2011 counsel for Mr Somerton sought first that the hearing of the creditor’s petition not proceed and that a further adjournment be granted.  Evidence was put before the court of another change in the proposed transaction, although the fresh transaction was also said to be such that it would result in funds being available to the family trust which could be distributed to Mr Somerton.  For reasons which I gave ex tempore I refused to grant that adjournment.  I proceeded with the hearing of the creditor’s petition. 

23. Section 52(1) of the Bankruptcy Act 1966 (Cth) (the Act) provides that if the court is satisfied with proof of the matters in s.52(1) of the Act it may make a sequestration order against the estate of the debtor. There is a discretion in that respect. The debtor sought an order that the court exercise its discretion not to make a sequestration order and instead that it adjourn the hearing pursuant to its discretionary power under s.52(1) of the Act.

24. It had been asserted in the amended notice of opposition filed on 30 June 2011 that there was other sufficient cause that the sequestration order ought not to be made and that on that basis the petition should be dismissed.  However at the hearing counsel for Mr Somerton indicated that instead he relied on the grounds in the amended notice of opposition in support of his application that the court exercise its discretion to adjourn the hearing.  The debtor argued that it was appropriate that there be an adjournment and that the court maintain “supervision” by bringing the matter back before it in order to enable Mr Somerton to have time to obtain funds to pay his creditors. It was explained that no reliance was placed on any contention that the court should dismiss the petition under s.52(2)(b) of the Act. It was also acknowledged that Mr Somerton was insolvent. There was no reliance placed on s.52(2)(a) of the Act.

25. It was said that Mr Somerton had no assets and that, in the absence of assets, making a sequestration order would be futile.  However reliance was placed on the fact that Mr Somerton was a discretionary beneficiary of the Artskyd Family Trust and that the trustee, Vanstra, had a discretion.  It was submitted that unless Vanstra exercised its discretion and made a distribution in favour of Mr Somerton there was no prospect that there would be assets available for the benefit of his creditors. 

26. There was said to be a reasonable expectation on the evidence before the court that following sales of shares in Energie under the fresh proposal, involving a share exchange agreement with a company listed on the Frankfurt Stock Exchange, True Green LED TLC (True Green) and sale of the True Green shares, Vanstra would raise sufficient funds to enable the Artskyd Family Trust to be capable of making a discretionary distribution in favour of Mr Somerton.  In the amended notice of opposition it was suggested that making a sequestration order in relation to the estate of Mr Somerton would put the proposed merger in jeopardy.

27. At the time of the hearing on 30 June 2011 there was no evidence of any further resolution by the directors of Vanstra.  One of the documents that is now before the court by virtue of the leave that I gave to re-open the respondent’s case today is a subsequent resolution by the directors of Vanstra to sell shares in True Green (after the share exchange) and thereafter to distribute funds to Mr Somerton sufficient to meet all his liabilities existing at the date of the distribution, again subject to him not being bankrupt at the time of the distribution.

28. It was submitted for the debtor that it was not in the public interest or in the interests of creditors as a whole that a sequestration order be made. 

29. The applicant opposed any further adjournment being granted and sought that the court make a sequestration order. 

30. The current proposal involves an agreement to sell the entire issued share capital of Energie.  The vendors are said to be three companies, B Nominees Pty Limited, Vanstra and another company.  Energie is said to have subsidiaries, including an American entity.  Reference is made to an option agreement between American Energie Future LLC and another company to acquire all of the equity in a company which owns certain rights to coal gasification projects and coal exploration research and development operating licences in the United States of America.  Annexed to Mr Somerton’s affidavit of 30 June 2011 is a draft unsigned valuation, which Mr Somerton described as a draft valuation of Energie, although it appeared to relate to a particular underground coal gasification project in the United States.  Annexed to Mr Somerton’s affidavit of 8 July 2011 is a copy of the final valuation of what is described as the Rawlins Project with a covering letter from Clean Coal Limited which includes a statement that the fully discounted valuation of the project is $US81.8 million.  That letter to Mr Somerton describes him as the managing director and the chief executive officer of Energie. 

31. This fresh proposal was first raised in evidence before the court on 30 June 2011.  Mr Somerton’s evidence, in his affidavit of 30 June 2011, was that he had received correspondence from Jade advising that there had been problems with the brokers and that they would prefer that the then proposed transaction take place at a later date, in September or October 2011.  There were also said to be continuing problems with “the Chinese” (which I am told is a reference to Asian Aim).  In these circumstances Mr Somerton claimed to have been looking for, and to have found, an alternative means for Vanstra to sell its shares in Energie. 

1. He claimed that his advisers had advised that they had an appropriate vehicle listed on the Frankfurt Stock Exchange, being True Green. Its shares had traded at €1.30 not long before Mr Somerton’s affidavit was sworn.  As at 30 June 2011 the share exchange agreement was said to have been signed by each party except B Nominees.  Now tendered in evidence is a copy of the agreement which bears the signature of a director of B Nominees Pty Limited.

2. I saw it as appropriate to allow the debtor to re-open his case to enable him to put before the court all the evidence as to events that had occurred recently relevant to the issue to be decided in these proceedings.  It is also relevant to the application for an adjournment on the basis that funds would be available within a reasonable period of time to enable Mr Somerton to pay his creditors, that Mr Somerton’s evidence in his affidavit of 8 July 2011 is that “With the agreement now executed, I anticipate I will be able to provide $100,000.00 to the Australian Taxation Office in part-payment of my personal debts in 4 - 6 weeks.  If I am made bankrupt no monies will be distributed to me and I will be unable to discharge my personal debts”.  As discussed below, this is not evidence that the present transaction, even with the additional steps that have been taken, will result in moneys being available sufficient for Mr Somerton to meet all of his liabilities within a reasonably short period of time.

3. In the affidavit of liability filed on 29 June 2011 Mr Somerton’s liability to the petitioning creditor was said to reflect a payment in the amount of $25,000 made after the filing of the petition.  The source of that $25,000 is not clear.  The amount due and payable to the petitioning creditor is now said to be $821,439.27.  There is no evidence of any further payment by Mr Somerton. 

4. The petitioning creditor has filed the usual affidavits. I am satisfied on the basis of the evidence before me that the debtor committed the act of bankruptcy alleged in the creditor’s petition and that the date of the act of bankruptcy was 4 August 2010. I am satisfied with proof of the matters required by s.52(1) of the Bankruptcy Act.

5. Counsel for Mr Somerton contended that it would be futile to make a sequestration order at this stage. It is not claimed, and I am not satisfied by the debtor, that he is able to pay his debts within s.52(2)(a) of the Act. I have considered the issue of futility in relation to the present adjournment application. I have borne in mind that under s.52(2)(b) if the court is not satisfied with proof of the matters in s.52(1), or is satisfied by the debtor that for other sufficient cause a sequestration order ought not to be made, it may dismiss the petition. That was the original basis of the amended notice of opposition. It appears that this claim is not pursued. In any event for the reasons that follow in relation to the adjournment application, I am not satisfied that for other sufficient cause a sequestration order ought not to be made.

6. In support of the application that the court grant an adjournment in the exercise of its discretion under s.52 of the Act it was submitted that there would be no assets available for distribution to creditors in the absence of completion of the foreshadowed deal, because Mr Somerton would have no funds available unless Vanstra was put in the position to and then exercised its discretion to make a distribution in his favour.

7. It is relevant to consider the evidence that is before the court in relation to Mr Somerton’s financial position, not only in relation to the issue of futility but also because it is well-established that where there is an adjournment application the court ought to be in possession of all relevant material, including all possible information as to the position of the debtor, as well as the position of the negotiations which it is said will result in funds being available for the payment of debts, see Re Bowen; Ex parte Debtor [1924] B & CR 32.

8. The evidence in relation to Mr Somerton’s financial position is largely contained in his affidavit of 3 February 2011 in which he stated that his only assets were personal effects to the value of $5000, that he lived in a property leased by the family trust with two of his children, that he was a beneficiary of the Family Trust and that his liabilities as at 3 February 2010 amounted to something in the order of $1.1 million.  His liabilities were listed in what appear to be approximate amounts.  The debt to the petitioning creditor was listed at $900,000.  He also disclosed indebtedness to a number of entities, including American Express, David Jones, Citibank, Westpac, St George Bank, NAB, two named private schools, and named persons, one of whom appears to be his former wife.  Certain of these creditors, but not all of them, were said to have agreed not to take any action in relation to the outstanding debts until after 30 April 2011. 

9. It was acknowledged that most of this indebtedness was incurred in 2007.  This was said to be as a consequence of the liquidation of a corporate travel and conference event management company which Mr Somerton ran from 2004 to 2007.  Mr Somerton claimed that he had not incurred any further debt since that time and that he had been placed on instalment plans in relation to many of his debts.  There is no more recent evidence before the court as to Mr Somerton’s precise indebtedness, as to any instalment plans or in relation to his ability to meet such instalments.  He was able to pay the Deputy Commissioner of Taxation an instalment which he “arranged” to pay on 20 December 2010 based on a loan to Vanstra associated with the then proposed merger with

10. Mr Somerton’s evidence in paragraph 12 of his February affidavit was as follows:  “Since the liquidation of GET, I have worked in various consultancy roles and endeavoured to continue to earn an income to support my family”.  He also attests:  “I continue to pay my former wife child support payments”.  However, there is no evidence before the court as to the income that Mr Somerton is or has been earning.  It is apparent from the evidence he has put before the court that he has been heavily involved in corporate negotiations and activities.  It is not clear whether he has been remunerated in any way for such activities.  The court simply does not know the full circumstances of Mr Somerton’s financial position, notwithstanding that he has disclosed assets in the manner described. 

11. Counsel for Mr Somerton suggested that authorities that relate to whether there is other sufficient cause under s.52(2)(b) of the Bankruptcy Act are also relevant in determining whether it is appropriate for the court to exercise its discretion to adjourn the hearing. Reliance was placed on Re Svir; Ex parte Commissioner of Taxation (1998) 83 FCR 314 in support of the proposition that the court’s discretion is extremely wide, consistent with the High Court approach in Cain v Whyte (1933) 48 CLR 639; [1932] HCA 6, as in relation to its discretion under s.52(2)(b) of the Act. It was acknowledged that it was for the debtor to show some cause warranting an adjournment overriding the interests of the public in stopping unremunerative trading and having regard to the rights of creditors who are unable to get their debts paid as they become due, but submitted that this case was in effect a case where assets were expected to come from a third party and that this was something to be taken into account.

12. In Re Svir assets were anticipated to come from the debtor’s mother.  In contrast to this case, the petitioning creditor had indicated a willingness to accept an arrangement outside bankruptcy by instalment payments.  One instalment had been paid.  It appears that another was held up because a proposed lender to the mother had not been prepared to hand over the money until the petition was dismissed.  It was in those circumstances that the discretion was exercised to dismiss the petition, albeit the remarks to that effect may be seen as obiter, as the Court held that in any event the creditor’s petition had lapsed due to the expiration of time.

13. Reliance was also placed by Mr Somerton on the decision of the Full Court of the Federal Court in Radich v Bank of New Zealand (1993) 116 ALR 676; [1993] FCA 450. In that case a creditor had obtained a sequestration order against a debtor in New Zealand. It subsequently filed a creditor’s petition in Australia, arguing that there were no other procedures for the administration of the debtor’s assets in Australia. The primary point of that case was that the sequestration order made by the judge at first instance in Australia was set aside for reasons that related to the powers of the trustee appointed in New Zealand and that trustee’s ability to acquire and maintain control of the debtor’s assets in Australia. However in the course of his judgment Einfeld J considered the factors that the court may take into account in determining whether for other sufficient cause a sequestration order ought not to be made under s.52(2)(b) of the Bankruptcy Act.

14. The respondent submitted that such factors may also be relevant in relation to whether or not an adjournment should be granted, in particular that regard should be had to whether the making of a sequestration order (or in this context the making of a sequestration order at this time) would be an exercise in futility on the basis that the respondent debtor has no assets.  It was suggested, or appeared to be suggested, that in Radich the debtor’s estate had been investigated and that there were no assets and hence there was no point in making the sequestration order. In fact, as I understand it, after outlining the futility doctrine in relation to an argument that there would be no assets, Einfeld J was of the view (at 688) that the trial judge had been correct in concluding that there was a possibility of Mr Radich obtaining property in the future and saw no error in the exercise of his Honour’s discretion to make a sequestration order on the basis of the factual possibility of assets. His Honour then dealt with the issue of whether the New Zealand trustee could take action to recover Australian assets.

15. Radich does not assist Mr Somerton.  When one considers the cases discussed in Radich and the approach taken in Radich what emerges is that a debtor who wishes to assert that an absence of assets constitutes other sufficient cause (and I would say also a debtor who wishes to rely on such an argument in the context of an adjournment application) faces considerable difficulty in establishing that the making of a sequestration order would be an exercise in futility (see Radich per Einfield J at 687).

16. There is limited evidence before the court in relation to Mr Somerton’s complete financial position.  It has not been added to in more recent affidavits, other than by a clarification about the fact that his indebtedness was all unsecured.  It is notable that there is no evidence as to Mr Somerton’s income, or indeed, as to the precise nature and extent of his various consultancy roles.  Mr Somerton has disclosed his directorships of a number of companies in his subsequent affidavits.  It is clear that he is heavily involved in corporate activities which he hopes will lead to funds being made available to the Family Trust.  It is not clear whether he has been trading or engaging in business activities on his own account.  The source and amount of his income is simply not clear. 

17. I also note more generally (relevant to the public interest) that in the documents that are before the court Mr Somerton has referred to “we” having concluded negotiations with a company and needing to pay $100,000 and “we” working to raise $2 million and a further $6 million, working with someone else on a $200 million financing project (which appears to relate to the Rawlins project) and the need to report to “his” creditors.  It appears, at the least, that people are investing through Mr Somerton in certain companies.  In that sense he is certainly involved in commercial activities in what appears to be rather more than a mere consultancy role in circumstances where he is admittedly and clearly insolvent and has substantial liabilities going back to 2007.

18. Moreover, if Mr Somerton were to be made bankrupt, some of whatever future income he earns may be made available to creditors.  In the absence of complete information in that respect it is not possible to say on the evidence before the court that it is clear beyond question that a sequestration order would provide no property divisible among creditors.  I have had regard to what Einfeld J said in Radich at 686, pointing out that, as the Master of the Rolls, Lord Esher stated in Re Betts; Ex parte Betts (1897) 1QB 50:

    “If the court is clearly convinced not merely by the statement of the debtor, but from all the circumstances of the case, that there cannot be any assets or any prospect of any coming into existence, and that, if a receiving order is made the only effect will be a mere waste of money and costs, then in such a case the court has a discretion in this matter, and will be justified in exercising that discretion by refusing to make the order.”

19. This is not a case in which it can be said that it is clear that Mr Somerton has no prospect of any assets coming into existence or any future income, such that this would warrant an adjournment on the basis that a sequestration order would be futile.  As acknowledged in Radich and as relevant in this case (without considering whether s.139D of the Bankruptcy Act would apply as the applicant suggested), the courts are “reluctant to refuse a sequestration order on discretionary grounds” because “it may be that it is only after sequestration, with a full investigation by a trustee in bankruptcy including a possible public examination of the bankrupt and other persons, that assets may come to light” (Radich at 686 per Einfeld J).

20. At the least, it cannot be said in this case that there is no prospect that the debtor may earn an income from which money would be available for distribution among creditors.  In that respect it is relevant to have regard to the circumstances of Mr Darcey, considered by a Full Court of the Federal Court including French J (as he then was) in Re Patrick Michael Darcey v The Preterm Foundation Appeal [1988] FCA 165, and referred to in Radich v Bank of New Zealand.  The debtor in that case had put evidence before the court that he had joined a lay religious order, the members of which had made a vow of poverty requiring that they have no personal income or assets.  There was also evidence that he had no other occupation and no personal income or assets and supporting evidence from the Brother-General of the order.  In rejecting an argument that the trial judge had erred in the exercise of his discretion by making a sequestration order French J (with whom Fox and Wilcox JJ agreed) pointed out that the acceptance that the debtor did not have personal assets did not dispose of the question of whether there might be property available for distribution to his creditors.  Nor did the fact that any assets would be disclaimed or assigned pursuant to the appellant’s vows provide a complete answer.  As Einfeld J stated in Radich at page 687 “the policy rationale for precaution to be exercised in relation to the doctrine of futility (see In Re Field (A Debtor) [1978] Ch 371 at 375 per Megarry VC) suggests that the futility doctrine must be so circumscribed that it only applies to situations in which people cannot deliberately contrive to avoid bankruptcy”.  Such a limit on the futility doctrine is also relevant to the present case.

21. Moreover where such a claim is made in support of an application for an adjournment, whether prior to the hearing or at the hearing of the creditor’s petition, the court ought to be in possession of all possible information about the position of the debtor.  I am not satisfied that that is the case in the present circumstances. 

22. Further, the debtor has a substantial indebtedness as set out above.  That is a factor relevant to the exercise of the wide discretion to consider whether a hearing should be adjourned in light of all the circumstances.  I have also borne in mind that in hearing a creditor’s petition the court is acting not merely between the parties but also in the public interest.  The petitioning creditor has proved a substantial debt and an act of bankruptcy.  It is well-established that in such circumstances such a creditor has a prima facie right to a sequestration order.  There is no evidence or suggestion of any challenge to or appeal from the judgment that is relied on as the basis for the bankruptcy notice.  It is important to minimise delay once proceedings of this nature have been instituted, (see Abignano v Wenkart [1999] FCA 801). There is no evidence before the court from any other creditors, although a number of other creditors have been disclosed by the debtor.

23. The policy objectives of the Bankruptcy Act are relevant to be taken into account in relation to an adjournment application. Thus it is relevant to have regard to the need to stop individuals who are unable to meet their debts from insolvent trading and to assist creditors who are unable to recover debts owed to them as discussed in Rotstein & Associates v Slaveski (2010) 8 ABC(NS) 200; [2010] FCA 493. The issue of whether Mr Somerton is in fact trading on his own account is not clear. He is certainly involved in ongoing commercial activities, albeit through corporate entities.

24. It is also relevant to bear in mind the time that has passed since the creditor’s petition was presented and the number of adjournments which have been granted over a considerable period of time, but which have not resulted in funds becoming available.  I understand that there have been a number of different attempts to raise funds.  The evidence has been not as fulsome as it might have been and much was in the form of draft documents.  It has increased as time went on.  While there is a suggestion that funds will become available from the Family Trust (see Re Svir), there is no current proposal which is such that the debtor can meet the whole of his indebtedness to his creditors (or even to the petitioning creditor) within a reasonable period.  Rather, it is now said that some $100,000 should be available in four to six weeks. 

25. The past proposals that were said to be likely to result in funds becoming available have not resulted in funds becoming available.  Any future funds depend ultimately on the exercise of the discretion of the trustee (assuming that the transactions proceed as expected).  The evidence filed pursuant to the leave to re-open does not take the matter sufficiently further to satisfy me that there is a prospect that in the short or even the intermediate term sufficient funds will be available for Mr Somerton to pay all of his creditors.  As was submitted by the solicitor for the creditor, numerous steps would be necessary before any creditors would be paid.  The final execution of the document by B Nominees is but one step.  There is no evidence before the court of funds actually being available to meet the full indebtedness or as to when such balance is to be paid. 

26. It has not been suggested that the current proposal for the share exchange pursuant to the agreement and the sale of the shares listed on the Frankfurt Stock Exchange is formally staged in some way or that there are some formal limits on sale of shares at a particular time.  Rather, it was submitted that there needed to be an orderly sale of the shares as referred to in one of the resolutions annexed to the most recent affidavit.  However there is no evidence that sufficient shares will be sold to pay the petitioning creditor, let alone to meet Mr Somerton’s indebtedness to all his creditors. 

1. Mr Somerton relies on the resolution of Vanstra, the trustee of the family trust.  He is one of the two directors of Vanstra.  Vanstra has made resolutions that it will make funds available to him as a beneficiary of the Family Trust conditional upon him not being bankrupt at the time.  That, of course, is a matter that could be revisited at any time.  The trustee of Vanstra Pty Limited is not a party to these proceedings.  It presumably has a discretion.  The resolution that has been made is not such as to persuade me that the bankruptcy of Mr Somerton would be a complete exercise in futility as seems to be contended.

2. The recent affidavit evidence does not take the matter sufficiently further than the evidence that was previously before the court.  The adjournment that is sought is to a large extent open-ended, albeit it is suggested that the matter should come back before the court on a number of occasions so that the matter is under the “supervision” of the court.  The indefinite nature of the adjournment sought and the fact that there is no clear indication as to when the full amount owed to the petitioning creditor would be paid are factors that do not support the adjournment application.  Indeed, there seems to be a retreat from the suggestion that sufficient funds would shortly be available to pay all creditors as was previously indicated to the court by the applicant.  

3. Having regard to all of the circumstances of the case, the interests of the parties and the interests of the public I am not persuaded that it is appropriate that a further adjournment be granted. 

4. I am satisfied of the matters in s.52(1) of the Bankruptcy Act. I am not satisfied of the matters in s.52(2) of the Act. I am not satisfied that it is appropriate for me to exercise the discretion to grant the adjournment that is sought on the basis on which it is sought or otherwise. I am satisfied that a sequestration order should be made against the estate of Mr Somerton and also that the usual order as to costs should be made.

5. Accordingly, it is ordered that a sequestration order be made against the estate of Richard Mark Somerton.  The applicant creditor’s costs including any reserved costs should be taxed in accordance with the Federal Court Rules and paid from the estate of the respondent debtor in accordance with the Act.  Under the Bankruptcy Regulations a copy of this sequestration order should be given to the Official Receiver in Sydney within two days.  The court notes that the date of the act of bankruptcy is 4 August 2010. 

I certify that the preceding sixty-two (62) paragraphs are a true copy of the reasons for judgment of Barnes FM

Date:  29 July 2011