Esanda Finance Corporation Limited v Starr - [2010] FMCA 177

FEDERAL MAGISTRATES COURT OF AUSTRALIA

ESANDA FINANCE CORPORATION LIMITED v STARR

[2010] FMCA 177

BANKRUPTCY – Application for review of decision of Registrar – proposed Supreme Court action – applicant not solvent – Sequestration order affirmed.

Bankruptcy Act 1966, ss.52(1), 52(2), 52(2)(a), 52(2)(b)
Federal Court (Bankruptcy) Rules 2005, r.4.06

Applicant:

ESANDA FINANCE CORPORATION

Respondent:

CLINTON HENRY STARR

File Number:

MLG 854 of 2009

Judgment of:

Burchardt FM

Hearing date:

23 February 2010

Date of Last Submission:

23 February 2010

Delivered at:

Melbourne

Delivered on:

1 March 2010

REPRESENTATION

Counsel for the Applicant:

Mr Angenent

Solicitors for the Applicant:

Gadens Lawyers

The Respondent:

In person

ORDERS

The Sequestration Order made by Registrar Burns dated 26 October 2009 be affirmed and remains in full force and effect.
The application for review be dismissed.
The applicant’s and the supporting creditor’s costs of and incidental to the petition, including reserved costs, be taxed pursuant to Order 62 of the Federal Court rules and paid in accordance with the statute.

The Court notes that the date of the act of bankruptcy is 4 June 2009.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
MELBOURNE

MLG 854 of 2009

ESANDA FINANCE CORPORATION

Applicant

And

CLINTON HENRY STARR

Respondent

REASONS FOR JUDGMENT

The matter before the Court this morning is an application filed on

16 November 2009. It seeks review of the decision of Registrar Burns, made on 26 October 2009, in which Registrar Burns made a Sequestration Order against the estate of Clinton Henry Starr.
On page 2 of the application for review Mr Starr said the following. Under the heading, “Give a number to each decree or order sought”, he wrote:
“That the Sequestration Order be set aside until such time as the affairs of the companies which incurred the debts have been subject to examination by the Federal Ombudsman under case 110373, & that the affairs of the principal operating company have been resolved by the liquidator in terms of Section 440 of the Corporations Act, and in the knowledge of & litigation totalling some $16 million gross being brought` against the NAB & McGrath Nicol, to be brought in the New Year, and which will offer full restitution to all creditors, including the applicant & supporting creditor in this action.”
The petition on which this proceeding was originally founded alleges a debt on the part of Mr Starr in the sum of $88,158.91. It followed a Bankruptcy Notice served on 14 May 2009. When the matter was before Registrar Hetyey on 20 August 2009, Registrar Hetyey made an order number 2 to this effect:
“By 4.00 pm on Tuesday 25 August 2009, the respondent file and serve a notice of opposition and affidavit in support together with an affidavit which sets out the respondent’s current financial position, including details of what assets are personally owned by the respondent and may be liquidated in payment of his debts.”
Mr Starr filed an affidavit on 28 August 2009. In that affidavit he asserted he was solvent but required more time. A schedule attached to that affidavit asserted assets worth over $1 million. There was also a document entitled “Explanation to the Registrar of the Court”. It was prepared on 26 and 27 October 2009 and sets out background.

It appears that Mr Starr concedes his debts to both the petitioning and supporting creditors, although he makes complaints as to their conduct generally.
The matter was further adjourned for a hearing before Registrar Moore on 31 August 2009 and Mr Starr filed another affidavit on 20 October 2009. In that affidavit, relevantly, he asserted that the debts with which we are concerned were debts of the companies with which he had been involved. The Sequestration Order followed, as I have indicated, on

26 October 2009. The matter finally came before me on 1 February 2010. On that day I gave a further opportunity to Mr Starr to file any relevant affidavits. He did so on 17 February.
I make the following points about the material filed on that date. First, in paragraph 2(e) he acknowledged the debts that are the subject of the petition and the supporting creditors action. Secondly, he went on to say that he was going to be taking action in the Victorian Supreme Court. That is asserted at paragraph 2(a) of the affidavit. He likewise, referred to a separate investigation by the banking ombudsman at paragraph 2(f). He pointed out that the Sequestration Order would prevent these actions and went on to give a synopsis of matters giving rise to the Supreme Court action in paragraph 3 of that affidavit.

It suffices to say that, while cogent, the proposed action will have multiple defendants and various causes of action. It is quite impossible to quantify the chances of success but the one thing one can say with certainty is that the action will take years on the face of even the synopsis provided by Mr Starr.
Mr Starr has also forwarded to the Court a letter from the Banking Ombudsman, dated 16 October 2010. From that letter it is apparent that at that time the case had not been allocated to a case officer and any resolution of the matters therein raised was clearly some way off. I note that the Banking Ombudsman would appear to have power to grant relief up to about $280,000 which, if it were to be awarded, would pay out the debts of the petitioner and supporting creditor.
Coming to submissions: the creditors rely upon the affidavits of final search and affidavit of debt, filed by leave on 23 February 2010. Service is not in issue. Indeed, the matters with which one is concerned in s.52(1) of the Bankruptcy Act 1966 (“the Act”) are not disputed. In the circumstances, and to the extent necessary, I will dispense with further compliance with r.4.06 of the Rules. I am satisfied, I should make it clear in any event – despite this dispensation, of the matters required to be satisfied pursuant to

s.52 sub-section (1).
Mr Henderson, for the supporting creditor, points to the fact that the trustee has been acting since 20 October 2009 as a relevant consideration and I accept that it is. Mr Starr addressed the Court personally. He said he had behaved ethically and responsibly. He said he had legal advice that he had a good case. If he were to be made bankrupt his case would be lost for at least three years and he would be aggrieved by that. He said it was a complex matter which would not be dealt with promptly but if the petition was set aside he would try to pay. But – and this is, perhaps, important – he said he was not able to refinance or otherwise obtain further funds through mortgage, because of a guarantee given to the National Australia Bank.
In discussion it became clear that his various assets are subject to security of one form or another. Mr Starr confirmed he cannot pay his creditors until the Supreme Court case is finished. I should note, in passing if I may, that Mr Starr was a man who impressed me as being of evident sincerity and very dignified demeanour but the case falls to be decided according to law.
I have already indicated I am satisfied of the matters set out in s.52(1) of the Act. That takes me to s.52(2). So far as s.52(2)(a) is concerned Mr Starr has not satisfied me that he is able to pay his debts. Indeed he acknowledges clearly that he can not.
So far as section 52(2)(b) is concerned, I am concerned as to whether I should for other sufficient cause not make a Sequestration Order. Here Mr Starr points to the Supreme Court action and Bankruptcy Ombudsman proceeding who, as I mentioned, might be able to grant relief sufficient to pay out the debts owed to the two creditors. But I note in passing that even if there is sufficient cause, this only means that the Court may dismiss the petition. The matter is ultimately a matter of discretion.
Here Mr Starr’s chances of success are completely uncertain. The synopsis in his affidavit is his side of the story only. It is highly unlikely to be unchallenged. It is not possible to evaluate the claim in the Supreme Court action in detail in the absence of a contradictor. It is certainly not on the synopsis a case of overwhelming weight. It is clear the creditors will be denied for a long time in the event that the petition is not the subject of a Sequestration Order. Mr Starr himself has directly confirmed that the Supreme Court proceedings will be lengthy. The administration has been underway since October 2009, although that is not a major matter.
In all the circumstances it is clear that a Sequestration Order should be made.

I certify that the preceding fourteen (14) paragraphs are a true copy of the reasons for judgment of Burchardt FM

Associate: Ms B. Evans

Date: 1 March 2010