Etl v Lennon Settle
[2004] FMCA 718
•5 November 2004
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| ETL v LENNON SETTLE | [2004] FMCA 718 |
| BANKRUPTCY – Application to set aside Bankruptcy Notice or extending time pending an Appeal. |
Bankruptcy Act 1966, s.40(1)(g), 44(2), 44(3)
Liew v JNS Technologies (M) Sdn Bhd (1999) FCA 1428 (18 October 1999)
Elliott v Water Wheel Holdings Ltd and Water Wheel Mills Ltd [2004] FMCA 37
| Applicant: | KARL ETL |
| Respondent: | LENNON SETTLE |
| File No: | MLG 1091 of 2004 |
| Delivered on: | 5 November 2004 |
| Delivered at: | Melbourne |
| Hearing Date: | 5 October 2004 |
| Judgment of: | McInnis FM |
REPRESENTATION
| Counsel for the Applicant: | Mr Selimi |
| Solicitors for the Applicant: | Goldsmiths |
| Counsel for the Respondent: | Mr P Fary |
| Solicitors for the Respondent: | Lennon Settle Mazzeo |
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT MELBOURNE |
MLG 1091 of 2004
| KARL ETL |
Applicant
and
| LENNON SETTLE |
Respondent
REASONS FOR JUDGMENT
By an application filed 20 August 2004 Karl Etl (the applicant) seeks to set aside bankruptcy notice number VN1122/04 dated and issued 22 July 2004 (the bankruptcy notice) and in the alternative seeks an order that the time for compliance with the requirements of the bankruptcy notice against the applicant be extended up to and including the hearing and determination of an appeal in the Court of Appeal in the Supreme Court of Victoria or to the date that the application to set aside the bankruptcy notice is heard and determined. In fact after hearing the application the decision was reserved and the time for compliance with the requirements of the bankruptcy notice extended until a determination of this application. An alternative application seeking to restrain the respondent from issuing any further bankruptcy notice against the applicant for matters arising out of a County Court proceeding was not pursued.
The bankruptcy notice was issued upon the request of Lennon Settle (the creditor) and relied upon a debt of $101,616.04 which was the amount of a judgment of the County Court by order made on 14 July 2004.
A notice of appeal in the Court of Appeal in the Supreme Court of Victoria was filed by the applicant on 27 July 2004. The applicant appeals from the whole of the judgment and orders made by the County Court on 14 July 2004.
When the matter was listed before this court on 6 September 2004 an order was made that it be adjourned to 5 October 2004 on the basis that the applicant by affidavit evidence from the applicant's solicitor stated that instructions had been received to make application to the Court of Appeal of the Supreme Court of Victoria for a stay of the County Court orders. The application was made to the Court of Appeal and rejected by that court on 1 October 2004. At the time of the further hearing of the application an authenticated copy of the orders of the Court of Appeal and reasons for its decision were not available to this court. At the same time the Court of Appeal dismissed the applicant's application for a stay it also dismissed an application by the creditor for security for costs. Again an authenticated copy of that order and reasons was not provided to this court.
In support of the application the applicant relies upon affidavits sworn by him on 19 August 2004 and 4 October 2004. The creditor has relied upon an affidavit of Nick Mazzeo sworn 25 August 2004 which exhibited a copy of the County Court decision of Judge Howie delivered on 14 July 2004. It had noted from that exhibit that the hearing before Judge Howie occupied seven hearing days. The subject matter of that proceeding was a claim by the creditor for costs and disbursements incurred in providing the professional services of a solicitor to the applicant. According to the judgment of the learned trial judge, Mr Mazzeo is one of three parties of the firm "Lennon Settle" and that firm had been engaged by the applicant in October 2001 to act on his behalf in relation to litigation in the Family Court of Australia whereby the applicant was a party in relation to a property dispute where the assets in dispute were valued in the vicinity of $2 million.
According to the decision of the learned trial judge in the County Court, the litigation in the Family Court "was apparently bitter and intractable". The proceedings were listed for trial in the Family Court on 10 December 2001. Other solicitors had previously acted for the applicant prior to the creditor and he had sought the services of the creditor to advise him in relation to the accounts rendered by those former solicitors. Ultimately, however, it appears that the applicant retained the creditor to act for and on his behalf in the Family Court proceedings and, as I understand it, the retainer was terminated on or about 24 December 2002 and it appears the trial date of the Family Court proceedings were adjourned to January 2003. It is not necessary for the court to set out in further detail the chronology of events in the Family Court proceedings.
Relevant law
During the course of submissions both counsel referred the court to the principles to be applied in the exercise of the court's discretion when considering an application to extend time for compliance with a bankruptcy notice pending an appeal from the judgment which forms the basis of that notice.
The parties referred the court to the decision of the Federal Court in Liew v JNS Technologies (M) Sdn Bhd (1999) FCA 1428 (18 October 1999) where Kenny J sets out what I regard to be the relevant principles of law in paragraphs 12, 13, 14, 16 and 17 of the judgment as follows:
“12 The authorities establish that an appeal is in the nature of "proceedings to set aside the judgment ... in respect of which the bankruptcy notice was issued": see, e.g., Re Taylor; ex parte Deputy Commissioner of Taxation (1983) 74 FLR 377; Bryant v Commonwealth Bank of Australia (unreported, Full Court of the Federal Court, 11 November 1994); Benaharon v Fabric Dyeworks (Aust) Pty Ltd [1998] FCA 1109.
13There have been differences in the cases about the principles which are to govern applications such as the present. In Re Baker; ex parte Baker v Staples (unreported, Federal Court, 4 September 1995), Keifel J held that an extension of time should ordinarily be granted where there is a "genuine and arguable" appeal being diligently prosecuted against a judgment founding a bankruptcy notice. A not dissimilar approach was adopted by Weinberg J in Benaharon and by Ryan J in Beckwith v Pedler [1999] FCA 1312. A different approach has been adopted in other cases. In Re Geard; ex parte Reid (unreported, Federal Court, 11 February 1999) Sheppard J refused an application to extend time, stating as follows:
The critical question then is how the discretion should be exercised. As earlier stated, the parties have made, both orally and in writing, detailed submissions concerning the issues which will arise for determination on the appeal and have invited the Court in effect to express a view, provisional though it may be, on the likely outcome of the appeal. To a degree I have felt obliged to look at the matter for myself, but I think it most undesirable that a judge of this Court should in effect undertake some provisional review to determine the correctness or otherwise of a judgment of another court especially where that judgment is under appeal to the Court of Appeal which has jurisdiction to hear appeals in the normal course.
I prefer to approach the matter in a different way.
The debtor has not made any application for a stay of proceedings pending the outcome of the appeal. Why he has not done so is not clear to me but the judgment which has been recovered against him is a final judgment and execution upon it has not been stayed. It would seem to me to require quite special circumstances before a court exercising jurisdiction in bankruptcy would, in effect, do what has not been done in the court in which the judgment has been obtained by extending the time for compliance with the bankruptcy notice when no application to stay the judgment has been made. ...
A further factor is that this is an application to extend time for compliance with a bankruptcy notice; it is not the hearing of a bankruptcy petition. The refusal of the application will not affect the status of the debtor but it will mean that he, in all probability, will commit an act of bankruptcy. That act of bankruptcy will be available to the petitioning creditors or to any other creditor upon which to base a bankruptcy petition at any time in the period of six months after the act of bankruptcy has been committed. Otherwise the debtor's position will remain unaffected by what the Court does.
If the appeal is ultimately dismissed and the judgment stands with the consequence that the bankruptcy proceedings go on, it may be quite important to the petitioning creditor, whoever he or she may be, to the general body of creditors and to the trustee in bankruptcy, that there be, for the purposes of the administration of the bankrupt estate, an act of bankruptcy committed at an earlier time than would be case if this application were acceded to.
Sheppard J's approach has been followed in Re Smith (unreported, Federal Court, 4 May 1994), Agrillo v Codisposto (unreported, Federal Court, 16 December 1994), Bryett v Deputy Commissioner of Taxation (1997) 37 ATR 1411, and Wenkart
v Abignano (unreported, Federal Court, 28 August 1998).
14In Byron v Southern Star Group Pty Ltd (1997) 73 FCR 264, Lehane J made it clear, at 270-271, that whilst a failure to apply for a stay was a relevant factor to which weight would be attached, it was not necessarily conclusive on the question whether an extension of time should be granted. This point was emphasised in Warner v Frost [1999] FCA 830 in which Hely J said:
For myself, I think with respect, that the view of Lehane J is to be preferred and I propose to follow it but the problem is that really the only matters which were relied upon in support of a stay were these: first, the existence of an arguable appeal. Second, the application for a stay was made but at least inferentially a reason for its refusal was the inability on the part of the applicant to put up security in sufficient sums. Thirdly, the impact of a change in status consequential upon the refusal of the stay. Fourthly, no showing of any prejudice to the respondent should an extension be granted and, finally, the appeal is likely to be heard and decided in a period of eight months or less.
In my view, these factors are insufficient to outweigh the proposition that the Court in which this judgment was obtained has declined to stay its execution and something more than an arguable appeal needs to be shown before the Bankruptcy Court would grant an extension of time for compliance with the bankruptcy notice, which would produce a similar effect to the granting of a stay. Really nothing has been shown in this case other than that there is an arguable appeal and that the consequence of refusing an extension will be the commission of an act of bankruptcy ... .
On the hearing of these applications, both counsel for the applicants and for JNST submitted that, in Warner v Frost, Hely J had correctly stated the principles which ought to govern the exercise of discretion on these applications.
15 …
16 Further, there are a number of factors which tell against the exercise of discretion in favour of the applicants. Those factors are:
(a)an application for a stay of the judgment has been made in the Supreme Court and refused;
(b)the appeal will not be heard in the immediate future and, on one account, not until after February 2001;
(c)a lengthy extension of time for compliance with the relevant bankruptcy notices may ultimately prejudice JNST as the judgment creditor; and
(dthe commission of acts of bankruptcy which may occur in the event that these applications are refused is not comparable to the consequences of sequestration orders.
17As we have seen, in Warner v Frost, Hely J placed some weight upon the former factor. The fact is that, the application for a stay of judgment having failed in the Supreme Court, the judgment is enforceable against the applicants. The period for which an extension is sought is also relevant. The applicants seek an extension until 21 days after delivery of judgment by the Court of Appeal. That date is, on any view, likely to be well into the future. Further, as Heerey J said in Re Nguyen; ex parte Commissioner of Taxation (1995) 54 FCR 403 at 407:
Extension of time for compliance with the bankruptcy notice may have important adverse consequences for the judgment creditor. For example, if a sequestration order is subsequently made the commencement of the bankruptcy may be later than would otherwise have been the case, which in turn may affect rights of recovery by the trustee in relation to property.
See also Byron at 270 per Lehane J. Finally, the commission of an act of bankruptcy, although a serious matter, does not carry with it the grave consequences brought about by the making of a sequestration order: cf Byron at 270 per Lehane J and Warner v Frost at par 8. It remains open to the Court on the hearing of any petition for sequestration to adjourn the hearing pending the resolution of the appeal by the Court of Appeal.”
Both counsel referred the court to its decision in the matter of Elliott v Water Wheel Holdings Ltd and Water Wheel Mills Ltd [2004] FMCA 37 and in particular paragraph 55 of the judgment where I state the following:
“As indicated earlier it is clear to me that a most significant factor in the present case is the refusal of the Court of Appeal to grant a stay. I further note and accept the passage relied upon by the respondent in the decision of Heerey J in Re Nguyen and in finding that there is significance in the refusal of the Court of Appeal to grant a stay and note that His Honour in that case referred to the appellate court as being the appropriate place to go for a stay of execution having noted that an extension of time for compliance is “similar in its effect to a stay of execution”. I accept however that the failure to obtain the stay is not determinative or as Heerey J stated is “not fatal to the application”. It is significant to note however and I accept that there is a desirability of fixing the relation back day at the earliest proper point of time and that this is another factor which the Court should take into account and provides a reason why it should be reluctant to extend the time for compliance where a creditor has an enforceable judgment in its favour.”
The applicant's submissions
The applicant relied upon affidavits sworn by him on 19 August 2004 and 4 October 2004. The affidavit sworn 4 October 2004 set out a number of annexures including annexure KE3 which was a further affidavit of the applicant sworn 21 September 2004 and filed in the Court of Appeal in the Supreme Court of Victoria in support of the application for a stay of the order of the County Court. In that affidavit reference is made to a deed of charge executed by the applicant on 18 July 2002 (the deed of charge) at the respondent's request and it is claimed by the applicant that -
the respondent has a charge over all the real estate that I own, together with the real estate owned by a company to which I am the sole director and shareholder, Millhouse and General and Mercantile Pty Ltd, in order to secure the payment of legal costs which may be found due and payable.
The deed of charge which appeared as annexure KE4 of the applicant's affidavit filed in this court on 4 October 2004 and which in turn is an affidavit sworn 24 September 2004 by Nick Mazzeo of the respondent has an exhibit to that affidavit exhibit "NM12" which is a copy of the deed. The deed provides in the recitals the following in relation to the applicant:
“C.Karl Etl is:
(i) The sole proprietor of 104 Roberts Road, Airport West.
(ii) The co-proprietor of the property situate at:
1) 5 Richardson Street, Essendon; and
2) Units 15 and 16, "Federation Court" Federation Avenue, Broadbeach, Gold Coast, Queensland;
(iii) A shareholder of the company known as Millhouse General and Mercantile which owns the following properties:
1) Unit 11, "Villa De La Palage", 3 Federation Avenue, Broadbeach, Gold Coast, Queensland;
2) Units 4 and 20, "Paradise Pearl", 5 Old Burleigh Road, Surfers Paradise, Gold Coast, Queensland.”
In the recitals these items of property, albeit imprecisely described, are referred to collectively as "the property".
In the deed of charge the recitals also state the following:
A. Etl is indebted to Lennon Settle in the sum of $6726.05 pursuant to memorandum of account under 5000 dated 5 July 2002 ("the debt")
B. Etl is desirous of Lennon Settle continuing to act in all legal matters on his behalf, including the Family Court proceedings against Ellen Etl and the Magistrates Court proceedings against Nicholas O'Donoghue and Co ("the proceedings").
In the operative part of the deed the following appears:
1. Etl covenants to repay the debt together with any additional costs and expenses incurred including legal costs, interest, counsel's fees, disbursements and any other fees and charges relating to the legal services provided by Lennon Settle (including charges relating to the proceedings) upon request by Lennon Settle.
2. Etl hereby charges as security for the debt and legal assistance referred to in recital B and in clause 1 herein all his estate and interest, both legal and equitable, in any freehold or leasehold interest in property which he currently owns, or which he will acquire in the future, including in particular the property referred to in recital C herein and agrees to execute a mortgage in registrable form immediately upon being requested to do so by Lennon Settle.
3. Etl hereby irrevocably appoints Lennon Settle as his attorney for the purpose of executing a caveat in registrable form over the property should Lennon Settle require it in its sole discretion and hereby ratifies any use of the power given to Lennon Settle under this clause should the power be exercised.
4. Etl acknowledges that he will be liable for the costs and expenses of the preparation of this charge, the caveat or mortgage and removal of any caveat or mortgage against the said property and further undertakes at his expense when called upon to execute such mortgages and other assurances and instruments in respect of his estate or in respect of the property as may be required by Lennon Settle …
6. Etl appoints Nick Mazzeo, solicitor of Lennon Settle, as his attorney for the purpose of signing such mortgage documents.
It is claimed by the applicant that the deed provides security over the property, although I should add the details concerning the property set out in the affidavit material are imprecise, appear to be inaccurate and in a sense somewhat difficult to trace through the various documents provided. It would have been preferable if each item of property had been identified precisely with its address and title details together with an estimated value rather than require the court to trace through various exhibits and various affidavits filed in other places.
During the course of submissions, however, counsel for the applicant referred to the deed of charge and claimed that the respondent has the benefit "and luxury of a deed of charge", and further stated "it is a secured creditor in respect of a property where there is no other encumbrance, no other interest other than of course the applicant's interest entire undivided beneficial interest in a property".
From the material it would appear that there are a number of properties which may be relevant, though the following submissions made before this court are relevant:
MR SELIMI: Therein your Honour will see a reference to the property owned by the applicant, firstly his principal place of residence being Richardson Street, Essendon and the value specified there of $450,000. Further, the property at Roberts Road, East Keilor which was valued at $220,000. Thirdly, the unit, 16 Federation Court, Broadbeach, valued at $230,000. I should indicate, as indeed the applicant has elaborated in his affidavit, that the value specified in that particular document were the values plucked out from the experts' reports filed in the Family Court which indeed were not in dispute.
That was the agreed value as at January of 2003. However your Honour will see in paragraph 5 of the applicant's current affidavit that he refers to exhibit KE6 which is the next exhibit in that particular bundle of exhibits. Your Honour will see exhibit mark KE7. Does your Honour have KE7, a document entitled Consolidated Statement of Financial Position?
HIS HONOUR: Yes, I do.
MR SELIMI: Therein your Honour will see updated values according to the applicant of each of the relevant properties so your Honour will see, for instance, the Richardson Road, Essendon Road property, $650,000 has a mortgage of course of $300,000-odd. The Roberts Road property is there valued at $240,000 and your Honour will see there is a mortgage of some $27,000 as at this date, applicable to that property. Your Honour will see that indeed the Roberts Road property is dealt with in paragraph 6 of the applicant's current affidavit where he says in paragraph 6:
The Roberts Road property previously had a mortgage in the sum of $100,000. That mortgage has been discharged.
Your Honour will have noted that in the affidavit filed in the Court of Appeal by the respondent it had been suggested that that mortgage was still current but he has deposed that that in fact has been discharged. The crux of the matter which I put to the Court of Appeal in essence was that it would seem from the affidavit material that certainly insofar as unit 16 is concerned, that has a minimal value of $230,000 and potentially a higher value, your Honour will see of $330,000. At the exhibit marked KE7 your Honour will see the property there is valued at $330,000 as compared to $230,000 in the Family Court material. Your Honour will also note that there is a unit 11 at 3-5 Federation Avenue, Broadbeach valued at $420,000.
That is a property, in fact, which is registered in the name of Millhouse General and Mercantile, a company in respect of which the applicant is the sole director and shareholder. But putting that particular property to one side and simply confining ourselves to unit 16, it is quite apparent, your Honour, that that property is entirely unencumbered. Moreover, the respondent has a charge lodged in respect of that property. It is the sole caveator in respect of that property. A caveat has been lodged. It is the only caveat that is lodged or filed in respect to that property and it has been filed pursuant to the charge that was signed by the applicant in favour of the respondent back in July of 2002.
It is noted from that extract that reference is made to various properties. In summary, based upon those submissions and the affidavit material it appears that there are the following properties:
i)5 Richardson Street, Essendon (the Essendon property) value $650,000 with a mortgage of approximately $300,000;
ii)44 Roberts Road, East Keilor (also referred to as Airport West) value $240,000 where it is claimed that a mortgage in the sum of $100,000 has been discharged;
iii)Unit 16, 7-4 Federation Avenue, Broadbeach, Queensland value $230,000;
iv)Unit 11, 3-5 Federation Avenue, Broadbeach value $420,000 registered in the name of Millhouse General and Mercantile.
There seemed to be some discrepancies in the description of the property either owned by the Applicant or by the company Millhouse General and Mercentile Pty Ltd (Millhouse) of which the Applicant at all material times was sole director and shareholder. On the material though not fully explained, it appears that at least at the time of the deed the Applicant was “the co-proprietor of the Essendon property and two units namely Units 15 and 16 “Federation Court”, Federation Avenue Broadbeach Gold Coast Queensland.” I assume that Unit 16 referred to in the deed is meant to refer to “Unit 16 7-4 Federation Avenue Broadbeach the value of which was referred to above as being $230,000. I further assume at the time of the deed that the Applicant was co-proprietor of that property with his wife. It is noted that the deed also refers to Millhouse being the owner of “Unit 11 ‘Villa De La Palage’ 3 Federation Avenue Broadbeach Gold Coast Queensland” which I assume is the same property as the property otherwise described as "Unit 11, 3-5 Federation Avenue Broadbeach” valued at $420,000 plus apparently at the time of the deed the company was also the owner of “Units 4 and 20 ‘Paradise Pool’, 5 Old Burleigh Road Surfers Paradise Gold Coast Queensland. No real attempt was made to set out in detail the property ownership though reliance was placed on Exhibit KE7 to the affidavit of the Applicant filed in the Supreme Court of Victoria Court of Appeal and sworn 21 September 2004 which is entitled “Consolidated Statement of Financial Position as at 30 June 2003” which purports to set out values as asserted by the Applicant. It makes no reference to the Old Burleigh Road property or any unit 15 as set out in the deed of charge.
In any event, the main point to be made, as I understood it, by the submissions for and on behalf of the applicant is that unit 16 Federation Court, Broadbeach is an unencumbered property valued at $230,000, at one point, though asserted in the affidavit material filed in this court by the applicant to be a property with a current market value of $330,000. It is noted that in relation to that property the applicant in his affidavit sworn 4 October 2004 states the following:
(7)The property at unit 16, 7-4 Federation Avenue, Broadbeach in the state of Queensland has a current market value of $330,000. That property is owned by the company Millhouse General and Mercantile Pty Ltd.
I am the sole director and shareholder of that company.
I am prepared to undertake to the court, in support of my application filed herein, not to dispose of that property or to encumber it pending the outcome of the appeal in the Court of Appeal in the Supreme Court of Victoria. The respondent has a charge over that property and has lodged a caveat of it (sic). No other person has an interest in that property.
(8)In my view, the respondent is fully secured in respect of the judgment debt owed to it and will suffer no detriment should there be an extension of time for compliance with the bankruptcy notice. In the absence of an extension, however, I will suffer irredeemable prejudice for the reasons deposed to in my affidavit sworn for the Court of Appeal (sic). Further, I understand that if I commit an act of bankruptcy, that would constitute an act of default under the mortgage over my residential home in Essendon which would thereby entail the lender to sell my home.
In the affidavit of Nick Mazzeo sworn 24 September 2004 and filed in the Court of Appeal of the Supreme Court of Victoria the deponent refers to the applicant's properties under the heading of Assets as follows:
Assets
(a)5 Richardson Street, Essendon which the appellant estimates is worth $450,000;
(b)44 Roberts Road, Airport West which the appellant estimates is worth $220,000;
(c)Unit 16 Federation Avenue, Broadbeach, Queensland which the appellant estimates is worth:- $230,000.
Total value of appellant's real estate:- $900,000.
In relation to liabilities the deponent, Mr Mazzeo, states the following:
Liabilities
Upon conducting a search of real property owned in the sole name of the appellant I am aware of the following encumbrances in caveats over such properties:
(a)5 Richardson Street, Essendon
(i)first mortgage by Permanent Custodians Ltd which I believe to be securing a loan of $300,000;
(ii)caveat dated 16 September 2003 in favour of Starnet Legal Pty Ltd who were acting on behalf of the appellant after the respondent ceased to act;
(iii)caveat dated 20 July 2004 in favour of Opat Goldsmith and Goldsmith Pty Ltd.
(b)44 Roberts Road, Airport West
(i)first mortgage in favour of Margaret June Baker and Betty Elderidge Walker - principal sum owed $100,000;
(ii)second mortgage in favour of Michael and Nixon Pty Ltd - principal sum owed $30,000;
(iii)caveat dated 6 September 2002 in favour of the respondent;
(iv)caveat dated 20 July 2004 in favour of Opat Goldsmith and Goldsmith Pty Ltd.
(c)unit 16 Federation Avenue, Broadbeach, Queensland
(i) caveat dated 18 November 2002 in favour of the respondent.
Reliance was placed upon the affidavit of the applicant in support of the application for a stay before the Court of Appeal when he claimed that any refusal to grant a stay may lead him to sell investment properties which had been acquired several years ago and that he would therefore suffer prejudice in seeking to find suitably priced replacement properties if he were forced to sell a property in the absence of a stay of execution. It was argued that likewise in the absence of a grant of an extension of time within which to comply with the bankruptcy notice the applicant will be forced to have what was described as "fire sale of one or more of his properties".
It was argued that notwithstanding the dismissal of the application for a stay in the Court of Appeal, that matter is not determinative of this application and in the exercise of the court's unfettered discretion the application should be allowed in circumstances where there is greater prejudice to the applicant than there may be to the respondent who given the security and undertaking would only suffer the prejudice of a delay in being denied the fruits of the judgment in the County Court. It was further argued, in any event, in the absence of bankruptcy proceedings there is nothing to prevent the respondent commencing enforcement proceedings for the sale of property and relying upon the charge.
It was further argued that in any event should the application fail and a creditor's petition be filed, then the court would be faced with the same material currently before it which would establish that the applicant is not insolvent. It was argued that he has a net worth exceeding $500,000 even on the lowest of the values referred to in the material. It was argued that is another relevant factor to take into account in the exercise of the court's discretion as the applicant who on the material is solvent would be subjected to an act of bankruptcy in circumstances where it is unlikely a court would order sequestration of his estate and where the respondent as a judgment creditor is a secured creditor. It was further argued that there is prejudice to the applicant in the sense that if an act of bankruptcy is committed, then he might be seen to default as referred to earlier under a mortgage in respect of his current family home.
Respondent's submissions
The respondent submitted that any prejudice suffered by the applicant in relation to the mortgage over the family home is a matter of the applicant's own doing in the sense that he has not addressed the issues raised by the judgment debt on an earlier occasion.
As to the submissions concerning security by way of the deed of charge, it was submitted that there is doubt about the extent to which the charge would apply and secure all of the debt. It was not conceded that the debt is fully secured.
Whether the respondent is a secured or unsecured creditor is not relevant, according to the respondent's submissions, as s.40(1)(g) of the Bankruptcy Act does not distinguish between a secured or unsecured creditor, but simply refers to a "creditor". It was submitted, and
I accept, that apart from applying to creditors in general the distinction between whether a creditor is secured or unsecured is dealt with in other provisions of the Bankruptcy Act, namely s.44(2) and 44(3) and the position of a surrender of security, and this is a matter which would be considered by the respondent in the context of any petition and, it was submitted, is not relevant in the exercise of the court's discretion in this application.
It was submitted that prima facie the respondent is entitled to the fruits of the judgment, particularly in circumstances where the Court of Appeal has refused an application for a stay. Whilst not suggesting that the appeal has been lodged without good faith, it was submitted that the prospects of the appeal are weak. It was submitted the court should not embark upon an inquiry in detail as to the merits of the appeal.
It was further argued that the issue of solvency is not simply a balance sheet exercise but rather a cash flow test and there is no evidence currently before the court as to the ability of the applicant to pay his debts as and when they fall due. It was conceded, however, that the Court of Appeal can place weight upon the issues raised concerning security and property holdings of the applicant. However, the value of the properties was simply being asserted by the applicant rather than supported by valuation evidence, and the court, as I understand the submissions of the respondent, can be aware of the lack of evidence in giving due weight to the valuations as asserted by the applicant.
In terms of the extent of the security, it was noted that at one point in the correspondence from solicitors acting at one point for the applicant a letter dated 14 March 2003 asserted the charge was null and void by reason of unconscionable conduct, duress and misleading and deceptive conduct. It was argued on behalf of the respondent that the applicant's view as to the validity of the security would appear to be inconsistent. On that point it was submitted by counsel for the applicant by way of reply that the applicant had not provided instructions to set aside the charge based on that letter and the assertions set out in the letter on the former solicitors.
In summary, the respondent opposed the application for extension of time on the following grounds:
· The orders are final orders and the Court of Appeal has refused a stay of them.
· The appeal is unlikely to be heard for around 14 months and then judgment might be reserved for a further period of time.
· While Mr Etl refers to prejudice, the alleged prejudice is no more than that faced by any judgment debtor who is required to realise assets to meet a judgment debt.
· It is desirable that the relation back day be fixed as early as possible.
· It remains open for the court on a hearing of any petition for sequestration to adjourn the hearing pending the hearing and determination of the appeal by the Court of Appeal (see Ahern v Deputy Commissioner of Taxation (1987) 76 ALR 137).
It was further submitted that there is no evidence that the application for the issue of the bankruptcy notice and service on the applicant was an abuse of process motivated by malice or out of spite or vengeance or any other improper purpose. The institution of an appeal against orders of itself is not, according to the respondent's submissions, a basis to extend time for compliance with the bankruptcy notice.
Reasoning
For the present purposes I am prepared to find that there is a deed charge in existence which purports to provide some security to the respondent in relation to property held either by the applicant in person or by the company of which he is a sole director and shareholder. I am further prepared to find that there is at least sufficient equity in the properties variously described of an amount which may be equivalent to the current indebtedness of the applicant as alleged by the respondent. It is not clear, however, that the security currently held on at least some of the property by way of caveats will necessarily take precedence over other creditors and/or will otherwise be enforceable, relying as they do upon the charge in relation to all amounts currently claimed to be outstanding by the respondent.
The undertaking offered, however, by the applicant is a factor which
I am prepared to take into account, at least to the extent that it appears to be an undertaking in relation to a property that is unencumbered and where the value appears without further evidence to exceed the amount currently claimed by the respondent as a debt against the applicant. Ultimately it may well be the case that the costs of and associated with the appeal proceedings in the Supreme Court may not be subject to the charge and/or the value of the property at that time will be sufficient to meet any costs ordered against the applicant in favour of the respondent in those proceedings in the event that the appeal fails.
Whilst I may be inclined to accept the submission on behalf of the applicant that the respondent is adequately protected by the security procured over the property having a value in excess of the value of the judgment debt, that does not of itself necessarily mean that the application should therefore be determined in favour of the applicant. The delay in the resolution of the appeal proceedings before the Court of Appeal is undoubtedly a further factor to be taken into account.
In this matter I accept the submissions made for and on behalf of the respondent as to the relevant law referred to earlier in this judgment and in a sense adopted by both parties. The discretion of the court is one which is properly described as discretion "at large". I otherwise accept and apply, as indicated earlier, the principles set out in the decision of Kenny J in the Liew decision.
In the present case whilst I accept that there is a bona fide appeal pending in the Court of Appeal of the Supreme Court of Victoria I am not able to otherwise draw any conclusions as to whether that appeal could properly be regarded as "arguable". The vague nature of the appeal grounds make it difficult to assess, and in any event, the court in considering the current application, as indicated by me in the matter of Elliott, should be careful not to embark upon an analysis of the prospects of success of the appeal which, as I have indicated in this case, I am not able to decide whether it is even arguable. As in the Elliott case, ultimately, it is my conclusion to accept that the appeal is bona fide.
I further accept that the decision of the Court of Appeal to refuse the grant of a stay is relevant though not determinative of the current application or fatal to the application. It is significant, however, that the stay has been refused and I accept that in this case, as in others, there is a desirability of fixing the relation back day to the earliest proper point in time.
In the present case a distinguishing feature of this application is clearly the question of security provided by the deed of charge. I accept the submissions of the respondent that the mere assertion of equity in various properties, albeit somewhat inaccurately described and without the benefit of expert evidence as to valuation, is not of itself determinative of this application. It is relevant to note, however, that the properties do exist and, as found earlier, I am prepared to conclude that at least on the material before me it would appear they have a value exceeding the current debt claimed by the respondent. That does not mean of course the current value of the property will be sufficient to meet any other debts incurred as a result of the appeal proceedings in the Supreme Court, though in my view that future indebtedness is not a matter which I should properly take into account in determining this application. It is only mentioned in passing as illustrating perhaps the uncertainty and unpredictability of the current equity held either by the applicant or his company in the properties described earlier in this judgment.
In my view, there is some doubt and uncertainty as to the enforceability of the deed of charge and the extent to which it covers the current debt which is the subject of the bankruptcy notice.
I do not accept that a secured creditor will be prevented from issuing a bankruptcy notice in the current circumstances. Of course different issues may arise upon the hearing of any creditor's petition including the issue of solvency, which no doubt will be considered in further detail, and also the issue of the obligations of a secured creditor, if indeed the respondent is found to be a "secured" creditor" after analysis of the validity of the deed of charge. They are all matters which can be agitated properly before the court upon a hearing of any creditors petition filed on behalf of the respondent.
Whilst there may be some prejudice to the applicant in being faced with the prospect of perhaps selling one of his assets, I do not regard that prejudice as a factor which would persuade this court to grant the application. There is some force in the respondent's submission that the predicament of the applicant is largely a matter of his own making in the sense that no reasonable effort seems to have been made to address the indebtedness by way of a further agreed security or other arrangement in relation to the properties by using the current equity. There are a number of options available to the applicant if, as he asserts, there is property valued in an amount far in excess of the judgment debt. I do not believe it is appropriate to prevent the respondent from pursuing the fruits of a final judgment in the County Court simply because there is an appeal pending in the Court of Appeal in the Supreme Court of Victoria.
It is clear to me that there will be considerable delay in the appeal proceedings which are currently pending and any prejudice by the applicant who may be required to realise assets is not sufficient, in my view, to overcome the other significant issues, namely, the desirability for a relation back day to be fixed as early as possible and for the respondent to enjoy the fruits of the judgment.
Issues concerning solvency and, as indicated, the interpretation of the deed of charge may no doubt be the subject of further material to be filed at an appropriate time if and when a creditor's petition is filed.
At this stage I am not satisfied on the material before me in the exercise of my discretion that it will be appropriate to allow the application for an extension of time for compliance with the bankruptcy notice. That is the key issue that was pursued in this application and for the reasons given it follows therefore that the application filed 20 August 2004 should be dismissed with costs.
I certify that the preceding forty-six (46) paragraphs are a true copy of the reasons for judgment of McInnis FM
Associate:
Date: 5 November 2004
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