Diners Club v Botros

[1999] FCA 1012

Diners Club and National Australia Trustees Limited v Allan Botros [1999] FCA 1012
Bankruptcy

Diners Club v Botros [1999] FCA 1012

DINERS CLUB LIMITED (ACN 004 343 051) and NATIONAL AUSTRALIA TRUSTEES LIMITED (ACN 007 350 405) v ALLAN BOTROS

V 7240 OF 1999

MARSHALL J

MELBOURNE

28 JULY 1999

BANKRUPTCY - Insolvency - whether appropriate to make sequestration order

Bankruptcy Act 1966 (Cth) ss 43, 52

Sandell v Porter (1966) 40 ALJR 71, applied

Re SVIR; Ex p. Commissioner of Taxation (1998) 83 FCR 314, referred to

IN THE FEDERAL COURT OF AUSTRALIA

VICTORIA DISTRICT REGISTRY

V7240 OF 1999

BETWEEN:

DINERS CLUB LIMITED (ACN 004 343 051)

First Applicant

NATIONAL AUSTRALIA TRUSTEES LIMITED

(ACN 007 350 405)

Second Applicant

AND:

ALLAN BOTROS

Respondent

JUDGE:

MARSHALL J

DATE OF ORDER:

28 JULY 1999

WHERE MADE:

MELBOURNE

THE COURT ORDERS THAT:

1.       The Estate of Allan Botros be sequestrated.

2.       The Petitioning Creditor's costs of and incidental to the petition including any reserved costs, be taxed and paid in accordance with the Bankruptcy Act 1966 (Cth).

Note:       Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA

VICTORIA DISTRICT REGISTRY

V7240 OF 1999

BETWEEN:

DINERS CLUB LIMITED (ACN 004 343 051)

First Applicant

NATIONAL AUSTRALIA TRUSTEES LIMITED

(ACN 007 350 405)

Second Applicant

AND:

ALLAN BOTROS

Respondent

JUDGE:

MARSHALL J

DATE:

28 JULY 1999

PLACE:

MELBOURNE

REASONS FOR JUDGMENT

1 On 19 July 1999 the Court heard the petition of the applicant creditor, Diners Club Limited ("Diners") for a sequestration order under s43 of the Bankruptcy Act 1966 (Cth) ("the Act") against the estate of the respondent, Mr Allan Botros. Mr Botros opposed the petition on the ground that he "is solvent and was at all material times solvent and is able to meet his debts as and when they fall due".

Background - The Proceeding

2       On 19 November 1998 Diners entered judgment against Mr Botros in the sum of $64,949.23. On 13 January 1999 Diners issued a bankruptcy notice in which it claimed the sum of $64,949.23 plus $1,181.52 penalty interest.

3       The bankruptcy notice was served on 3 February 1999. On 24 February 1999 Mr Botros committed an act of bankruptcy by failing to comply with the notice.

Background - The Facts

4       Mr Botros is employed as a financial broker by Beneficial Group (Aust) Pty Ltd ("Beneficial"). Mr Botros has a controlling interest in Beneficial. Mr Botros gave evidence that his total assets amount to approximately $1,273,000 and that his total liabilities, including money owed to Diners, amount to $1,127,000. According to Mr Botros this results in a surplus of $146,000.

5       Mr Botros' two main assets were said to be properties at Picnic Point and Prestons in New South Wales. The Picnic Point property has an estimated value of between $900,000 and $950,000. The Prestons property was said to be worth approximately $190,000.

6       The Picnic Point property is encumbered by two mortgages to the Commonwealth Bank of Australia which amount in total to $770,000. The Prestons property is jointly owned by Mr Botros' spouse and Mr Botros. It is mortgaged to Perpetual Trustees Victoria Limited in the amount of approximately $100,000. Additionally, Residential Housing Corporation Pty Limited ("RHC") holds a mortgage over the Prestons property in the sum of $212,000 as security for RHC in respect of a loan extended by RHC to Mr Botros' parents.

7       Other than the mortgages referred to above, Mr Botros gave evidence in an affidavit that he had liabilities of about $192,000. He excluded from that total the sum of $65,000 owed by him to Esanda Finance because that debt is secured by two motor vehicles Mr Botros asserts are valued at $78,000 in total. When cross-examined Mr Botros referred to a further liability not mentioned in his affidavit. The liability is a debt to Beneficial in the sum of approximately $58,000.

8       Mr Botros gave evidence that he was paying off his current debts at $12,500 per month. However the evidence disclosed that Mr Botros' drawings from Beneficial by way of salary were approximately $8,000 per month. Additionally, Mr Botros is now further indebted to the applicants in the sum of approximately $4,000 by way of interest on the County Court judgment up to the date of the hearing of the petition.

The Competing Submissions

9       Mr Nolan, of counsel, appeared for Diners. He submitted that Mr Botros is insolvent in that he is not able to pay debts as they fall due. He referred the Court to the judgment of Barwick CJ in Sandell v Porter (1966) 40 ALJR 71. In Sandell, Barwick CJ, with whom McTiernan and Windeyer JJ agreed held that insolvency is defined as, (at 73): "an inability to pay debts as they fall due out of the debtor's own money". Barwick CJ also said that such monies, "extend to moneys which [the debtor] 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. 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".

10       Mr Nolan described the above quote from Sandell as the classic test of insolvency. Mr Dib, a solicitor representing Mr Botros, did not contend to the contrary.

11       Mr Nolan submitted that the Prestons property should not be counted as a realisable asset of Mr Botros in the circumstances and in the context of Sandell. This was for two reasons:

1.       The property was not solely owned by Mr Botros and there was no evidence that Mrs Botros would consent to a sale of it.

2.       The mortgage in favour of RHC effectively meant that Mr Botros had no realisable equity in the Prestons property in any event.

12       Although leading no evidence from Mrs Botros, and not asking Mr Botros any questions on the topic, Mr Dib stated in final submissions that he had instructions from Mr Botros that Mrs Botros consented to the sale of the Prestons property. Putting to one side the unsatisfactory nature of that submission given the state of the evidence before the Court when one has regard to the security in favour of RHC, Mr Botros does not have any prospect of realising the Prestons property within a relatively short time frame. An alleged equity to the value of $90,000 in the Prestons property should not therefore be counted as an asset of Mr Botros for the purpose of determining whether or not he is able to pay his debts.

13       Mr Nolan also referred to the costs involved in agents fees in the sale of the Picnic Point property. Mr Botros did not refer to those fees in his affidavit. A sales inspection report tendered in evidence by Mr Dib referred to a $18,000 commission if the property was sold for $900,000. Mr Nolan also submitted that it was difficult to see how Mr Botros' current repayments for various non-property loans of $12,500 per month could be supported by a salary of a lesser gross amount.

Conclusions

14       The assertion by Mr Botros that his assets exceed his liabilities by $146,000 is rejected. That assertion includes an alleged equity for him of $90,000 in the Prestons property which is not realisable in a relatively short time in the context discussed in Sandell. Mr Botros' liabilities must also be increased, on his figures, by $58,000 in keeping with his loan from Beneficial and by $4,000 having regard to his indebtedness by way of interest on the judgment of the County Court. Even without taking into consideration the costs associated with the sale of the Picnic Point property, Mr Botros' ongoing liability to pay tax on his gross salary and also without having regard to his ongoing living expenses, the Court declines to dismiss the petition. The Court is not satisfied in accordance with s52(2)(a) of the Act that Mr Botros is able to pay his debts, particularly having regard to the fact that the onus is on Mr Botros to show that he is able to pay his debts. In my view he has not discharged that onus.

15       In paragraph 12 of his affidavit, Mr Botros said that:

"I firmly believe that I have the capacity to repay all my debts from my current assets and it would do great harm to me if the Applicant's petition is granted. As stated above, I am a Finance Broker and my ability to provide this service to my clients is very much connected to my reputation and credibility with the Finance Providers that I deal with. If I am declared bankrupt then that credibility will disappear and I will not be able to continue in this line of work."

16 Under s52(2)(b) of the Act the Court may dismiss the petition and not make a sequestration order, "for other sufficient cause". Again, Mr Botros carries the onus of establishing facts that amount to "sufficient cause". See generally Re SVIR; Ex p. Commissioner of Taxation (1998) 83 FCR 314 at 316-317.

17       Mr Nolan submitted that Mr Botros had brought his current financial situation upon himself and that the matters referred to in par 12 of the affidavit did not amount to "sufficient cause" within s52(2)(b) of the Act. Mr Dib advanced no submissions on this issue.

18       There is no suggestion that Mr Botros will lose his employment as a result of a sequestration order being made. He will continue to be employed by Beneficial. Any damage to his reputation has already been incurred as a result of the position in which he now finds himself independently of whether a sequestration order has been made or not. In the Court's view no "sufficient cause" has been established by Mr Botros within the meaning of s52(2)(b) of the Act to support a dismissal of the petition.

Order

The order of the Court will be as follows:

1.       The Estate of Allan Botros be sequestrated.

2.       The Petitioning Creditor's costs of and incidental to the petition including any reserved costs, be taxed and paid in accordance with the Bankruptcy Act 1966 (Cth).

In so ordering the Court notes that the date of the act of bankruptcy is 24 February 1999.

I certify that the preceding eighteen (18) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Marshall.

Associate:

Dated: 28 July 1999

DATE OF HEARING:       19 July 1999

DATE OF DECISION:       28 July 1999

PLACE:        MELBOURNE

#DATE 28:07:1999

Appearances

Counsel for the Applicants:        Mr J Nolan

Solicitor for the Applicants:        Peter Eggleston and Associates

Solicitor for the Respondent:        Mr G Dib of Paragon Solicitors and Attorneys