EJ Industries Ltd v FERNANDEZ

[2019] FCCA 2745

FEDERAL CIRCUIT COURT OF AUSTRALIA

EJ INDUSTRIES LTD v FERNANDEZ & ANOR [2019] FCCA 2745

Catchwords:
BANKRUPTCY – Application to review a sequestration order made by a registrar – whether the court should go behind the judgment – whether respondents solvent – whether any other reason to set aside or annul the bankruptcies.

Applicant: EJ INDUSTRIES LTD (BN 101594448 INCORPORATED IN CANADA)

First Respondent: BEATRICE FERNANDEZ

Second Respondent: TREVOR FERNANDEZ

File Number: MLG 801 of 2020

Judgment of: Judge Riley

Hearing date: 11 September 2020

Date of Last Submission: 11 September 2020

Delivered at: Melbourne

Delivered on: 11 September 2020

REPRESENTATION

Advocate for the applicant: Kylie Britton

Solicitors for the applicant: Dentons Australia

Advocates for the respondents : In person

Solicitors for the respondents: In person

Advocate for the trustees Mike Chenoweth

Solicitors for the trustees Rydge Evans Lawyers

ORDERS

1. The application for review filed on 9 July 2020 be dismissed.

2. The applicant petitioning creditor’s costs for the application to review be paid from the bankrupt estate as assessed or as agreed between the petitioning creditor and the trustee.

3. The trustee’s costs of the application be paid from the bankrupt estate.

FEDERAL CIRCUIT COURT
OF AUSTRALIA
AT MELBOURNE

MLG 801 of 2020

EJ INDUSTRIES LTD (BN 101594448 INCORPORATED IN CANADA)

Applicant

And

BEATRICE FERNANDEZ

First Respondent

And

TREVOR FERNANDEZ

Second Respondent

REASONS FOR JUDGMENT

(revised from the transcript)[1]

[1]     Chambers was notified by the first respondent on Friday, 2 October 2020 at 1:18pm that the respondents intended to file an appeal in this matter. Chambers ordered a transcript of the reasons for judgment on Friday, 2 October 2020 at 2:42pm, on next day turnaround. Auscript provided the transcript of the reasons for judgment on Saturday, 3 October 2020 at 12:03pm. The reasons for judgment were settled on Tuesday 6 October 2020, and provided to the parties by email on the same day at 11:35am.

1. This is an application to review a sequestration order made by a registrar on 18 June 2020 against the respondents.  They are a husband and wife.

2. Summary judgment was entered in the County Court against the bankrupts in a sum of a little over $819,000. The bankrupts say that the County Court did not give them a proper trial.

3. The court has considered whether it ought to go behind the judgment, as the summary judgment did not involve a full hearing in the County Court.

4. However, the affidavit sworn by Everton Murdoch on 24 August 2020 shows that the bankrupts sought review in the County Court of the summary judgment against them, and the summary judgment was upheld.

5. The bankrupts also sought to appeal from that decision to the Court of Appeal. However, they needed an extension of time to do that and the extension of time was refused. Obviously, in any extension of time application, the underlying merits of the case are a very significant component of the consideration of whether an extension of time should be granted. It seems to me that the bankrupts have had a reasonable examination of their situation in the state court system.

6. The basic complaint that the bankrupts raised is that they said that they borrowed about $450,000 from their relative, Everton Murdoch, and the claim against them is brought by a company that he was associated with, EJ Industries Ltd, which is a company incorporated Canada. They say that, if they had known that the loan was coming from a company and was thus a commercial arrangement, they would not have accepted the money. They say that they believed that it was a purely family loan that they would have to pay back eventually, but not in any short timeframe.

7. Mr Murdoch’s affidavit is to the effect that the bankrupts asked him for a family loan and he explained to the second respondent that he did not have the money that was sought but his company could advance the funds, provided that it was repaid within three months. That was subject to further negotiation and ultimately it was agreed that the money would be repaid in six months, according to Mr Murdoch. There was no formal loan agreement. However, the judgment against the bankrupts was based on money had and received, rather than a loan, as such. That, in a sense, puts to one side the issues about whether it was a commercial loan or a family loan.

8. It was not disputed in the state courts, and it is still not disputed, that the bankrupts received the money. Documents show the money clearly came from the company, and not from Mr Murdoch himself. As such, it is the company that had the right to recover the money and the issues that the bankrupts have raised about whether it was a family loan or a commercial loan are beside the point.

9. The trustee in this case has filed a report dated 26 August 2020, which is annexed to the affidavit sworn by Jason Lloyd Porter on 26 August 2020. The report indicated that the bankrupts were late to file their statement of affairs and that it is incomplete. There may be an offence or offences connected with that. The trustee has also expressed the view that there may be a number of other potential offences committed by the bankrupts. In addition, the trustee indicated that, although he had not undertaken a thorough investigation, because it is still early in the administration of the estate, it does appear that the bankrupts are insolvent on a cash flow basis and may also be insolvent on a balance sheet basis.

10. The court explained the test of solvency to the bankrupts. They were asked whether they had enough money to pay their debts as and when they fall due, or within a reasonable time thereafter. The first respondent said they did not. She said that their son was hoping to undertake a real estate development of some description that he would eventually give them some money to enable them to repay their debt to Mr Murdoch. In all the circumstances of this case, I am not persuaded that the bankrupts are solvent.

11. I am not persuaded that there is a proper reason to go behind the judgment. It seems to me that the state courts have thoroughly examined the case. Although the initial judgment was a summary judgment, rather than a judgment following a trial, there is nothing that has been advanced that would suggest that the summary judgment was in some way, faulty.

12. In addition, the petitioning creditor has filed all the usual proofs.

13. It seems to me that there is no proper basis upon which to set aside or annul the bankruptcy. The application to review will be dismissed.

I certify that the preceding thirteen (13) paragraphs are a true copy of the reasons for judgment of Judge Riley

Associate:

Date: 6 October 2020