Douglas, Hugh John Sholto v Bradbury, Christopher Donald
[1998] FCA 600
•11 MAY 1988
FEDERAL COURT OF AUSTRALIA
BANKRUPTCY - whether petition should be dismissed or adjourned - debtor alleging solvency if an action for the recovery of damages is successful - action commenced by a company in which the debtor is the principal shareholder
Bankruptcy Act 1966 (Cth) ss 52(1) and (2)
HUGH JOHN SHOLTO DOUGLAS V CHRISTOPHER DONALD BRADBURY
VG 7869 of 1997
FINKELSTEIN J
11 MAY 1998
MELBOURNE
IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
VG 7869 of 1997
BETWEEN:
HUGH JOHN SHOLTO DOUGLAS
ApplicantAND:
CHRISTOPHER DONALD BRADBURY
Respondent
JUDGE:
FINKELSTEIN J
DATE OF ORDER:
11 MAY 1988
WHERE MADE:
MELBOURNE
THE COURT ORDERS THAT:
A sequestration order be made against the estate of Christopher Donald Bradbury.
The costs of the petition, including any reserved costs, be paid according to the Bankruptcy Act 1966 (Cth).
James Patrick Downey be appointed the trustee of the estate of the said Christopher Donald Bradbury.
Date of Bankruptcy: 15 December 1997
Note: Settlement and entry of orders are dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
VG 7869 of 1997
BETWEEN:
HUGH JOHN SHOLTO DOUGLAS
ApplicantAND:
CHRISTOPHER DONALD BRADBURY
Respondent
JUDGE:
FINKELSTEIN J
DATE:
11 MAY 1998
PLACE:
MELBOURNE
REASONS FOR JUDGMENT
HIS HONOUR: Hugh John Sholto Douglas petitions for the sequestration of the estate of Christopher Donald Bradbury. The petition is founded on the failure to comply with bankruptcy notice served on Mr Bradbury on 24 November 1997. The bankruptcy notice was based on a judgment debt obtained in the County Court of Victoria, the debt being for the sum of $54,567 in respect of an unpaid loan made by Mr Douglas to Mr Bradbury.
Mr Bradbury opposed the making of the sequestration order. The principal ground for this opposition is that a company, Qikpak Industries Pty Ltd (Qikpak), of which Mr Bradbury is a shareholder, perhaps its principal shareholder, has a claim against Amcor Ltd (Amcor) for an amount slightly in excess of $2 million. The claim arises in the following way. In proceedings in the Supreme Court of South Australia wherein Qikpak was the defendant Amcor obtained a judgment against it in the sum of $121,342.20. Qikpak has filed a counterclaim against Amcor in that proceeding as a consequence of which the enforcement of Amcor's judgment debt has been stayed, pending the determination of Qikpak's counterclaim. Mr Bradbury says that the application for the order to sequestrate his estate should be stood over pending the hearing and determination of the counterclaim to be prosecuted by Qikpak because if that counterclaim is successful Mr Bradbury, as a result of his significant shareholding in Qikpak, will have sufficient assets to discharge not only his liability to Mr Douglas, but his liability to all of his other creditors as well.
I should point out that Mr Bradbury does have creditors apart from Mr Douglas. In a statement of affairs exhibited to an affidavit sworn by Mr Bradbury on 8 April 1998 it is disclosed that Mr Bradbury's creditors exceed $220,000, of which approximately $150,000 is owed to unsecured creditors and the balance, some $70,000, is owed to secured creditors.
By s 52(1) of the Bankruptcy Act 1966 (Cth), on the hearing of a creditors' petition the Court is empowered to make an order sequestrating the estate of a debtor upon proof of each of the matters set out in subsection (1). They are that the matters stated in the petition are verified, that there is proof of the service of the petition and that at the time of the hearing the debt on which the petition is based is still outstanding. On proof of each of these matters, the petitioner has a prima facie right to a sequestration order.
By s 52(2), if the court is satisfied, amongst other things, that the debtor is able to pay his or her debts or that for some other sufficient cause a sequestration order ought not be made, the Court may dismiss the petition. Sometimes the practice is, in an appropriate case, that the Court will stay the petition rather than dismisses it.
The question in this case is whether the fact that Mr Bradbury may, as a result of the success of an action for damages by a company of which he is a shareholder, recover money that he could utilise to satisfy his creditor is sufficient cause to either dismiss or adjourn the petition presented by Mr Douglas. I have no doubt that no such order should be made. Even if it was appropriate to have regard to the fact that Qikpak might recover money in its action against Amcor, which money may find its way to Mr Bradbury who may then be able to pay out his creditors, that would not be a sufficient reason to either dismiss or adjourn the petition to enable Mr Bradbury to take advantage of those possibilities in this case.
There are a number of reasons why that is so. Apart from some statements made by Mr Bradbury during the course of his submissions, I know nothing about the nature of the claim that Qikpak brings against Amcor. For example, I do not know what are the causes of action that the company seeks to prosecute against Amcor. Nor do I know anything about the facts upon which those causes of action are based. I do not know whether the quantum of the claim is reasonable.
In other words, it is but more speculation whether Mr Bradbury will ever be in a position to have funds available to discharge his liabilities, not only to Mr Douglas, but to his many other creditors. I do have some material from Qikpak's solicitors, that is the South Australian firm that acts on behalf of the company in the proceedings in the Supreme Court of South Australia, where it is suggested that their view of the claim brought against Amcor is that it has reasonable prospects of success. But it seems that their view is largely founded on the instructions provided by Mr Bradbury and does not represent their own assessment of the merits of the case.
That is not to say that the instructions are deficient in any respect but I would not be prepared to act on a view formed by the solicitors, based as it is on questions of fact rather than matters of law, without being told what those facts were so that I could form my own view about the likelihood or otherwise of the prospects of success of the action. That is, even if I thought that it might be appropriate to dismiss or adjourn a petition because of an impending action brought by a company of which the debtor is a shareholder, I could not make such an order without being in a position to form my own opinion of the likelihood of the prospects of success of that action.
There is of course another problem that is apparent from the correspondence that has been received from the South Australian solicitors. It seems clear enough that Qikpak has no funds and therefore cannot pay the costs of running the action. The South Australian solicitors, not surprisingly in those circumstances, have indicated that they would not themselves be prepared to carry the risk of carrying the costs of the action and have said, in a letter of 25 March 1998, that unless some "proper funding arrangement is in place", they would cease to act in the action and would make the appropriate application to the Supreme Court of South Australia for leave to cease to act.
That suggests to me that even if Qikpak has a reasonable cause of action against Amcor there is no certainty that the action will be run and indeed that there is a significant risk that at some stage between now and whenever the action will be fixed for trial, another matter of uncertainty, the solicitors might withdraw for lack of funds.
The position is that if an order is made sequestrating the estate of Mr Bradbury his trustee in bankruptcy can consider whether it is in the interests of the estate to fund Qikpak's action and if the trustee thinks that is an advisable course to take for the purposes of securing some benefit to the estate, he can no doubt take that step. Thus if there is some advantage to be gained in running the case so far as the creditors of Mr Bradbury are concerned, the trustee will no doubt decide whether that advantage should be pursued.
In the result, a sequestration order should be made against the estate of Mr Bradbury. I will order that the costs of the petition, together with any reserved costs, be paid according to statute. I will also order that James Patrick Downey be appointed as the trustee of the bankrupt’s estate.
I certify that this and the preceding four (4) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Finkelstein
Associate:
Dated: 1 June 1998
Counsel for the Applicant: MA Wallin Solicitor for the Applicant: William Abbott & Associates Counsel for the Respondent: Respondent in person Date of Hearing: 11 May 1998 Date of Judgment: 11 May 1998
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