GEORGE v HAMILTON-SMITH - [2006] FMCA 566

FEDERAL MAGISTRATES COURT OF AUSTRALIA

GEORGE v HAMILTON-SMITH

[2006] FMCA 566

BANKRUPTCY − Review of decision by Registrar to adjourn hearing of petition − where creditor has refused tender of moneys claimed plus interest on several occasions on grounds it is a conditional tender − where no evidence put forward by debtor to persuade court of solvency − whether other sufficient cause exists why sequestration order should be dismissed − whether debtor’s tendering of debt on several occasions is sufficient cause − whether existence of other proceedings against creditor and supporting creditor constitutes sufficient cause − whether it is appropriate to adjourn the petition until proceedings already set down for hearing have been heard.

Bankruptcy Act 1966, s.52

Martin & Anor v Commonwealth Bank of Australia [2001] FCA 87
McIntosh v Shashoua (1931) 46 CLR 494
Cain v Whyte (1933) 48 CLR 639
Ling v Enrobook Pty Ltd (1977) 143 ALR 397
Re A Judgment Debtor [1908] 3 KB 474

Applicant:

HEIDI GEORGE

Respondent:

TANYA HAMILTON-SMITH

File number:

ADG237 of 2005

Judgment of:

Raphael FM

Hearing date:

11 April 2006

Date of last submission:

11 April 2006

Delivered at:

Sydney

Delivered on:

21 April 2006

REPRESENTATION

Counsel for the Applicant:

M C Livesey QC

Solicitors for the Applicant:

Minter Ellison

Counsel for the Respondent:

G A Stevens

Solicitors for the Respondent:

McNamara Business and Property Law

ORDERS

Petition adjourned to the Registrar on 20 June 2006.
Liberty to apply on two days notice.
Costs reserved.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
SYDNEY

ADG237 of 2005

HEIDI GEORGE

Applicant

And

TANYA HAMILTON-SMITH

Respondent

REASONS FOR JUDGMENT

This proceeding is an application for review of a decision of Registrar Christie who, after hearing an application for a sequestration order, adjourned the hearing of the petition until 5 June 2006. The Registrar published her reasons for this decision on 28 February 2006.

Her reasons are comprehensive, made reference to relevant authority and are persuasive. If this was an appeal against her decision I would be hard put to find that her exercise of discretion in adjourning the matter miscarried. But a review of a decision of the Registrar by a Federal Magistrate is not an appeal, it is a hearing de novo; Martin & Anor v Commonwealth Bank of Australia [2001] FCA 87 and that requires me to give consideration to all the matters required by s.52 of the Bankruptcy Act 1966 (the “Act”). If I was to make a decision that the petition should be adjourned similar to that made by the Registrar it would have to be my own decision based upon evidence which I had and not upon a view that her discretion had not miscarried.
The petitioning creditor claims an amount owed by the debtor in the sum of $4,079.80 in respect of a judgment debt out of the Magistrates Court of South Australia in Action 729 of 2002 plus interest. The debtor has tendered payment of this sum on more than one occasion and has also tendered an amount in respect of interest. The creditor has refused the payment. The creditor says that the tender is a conditional tender because it does not involve the debtor discontinuing certain other proceedings in the Magistrates Court of South Australia seeking a declaration that the judgment debt, upon which the sequestration order is based, has been satisfied or alternatively claiming payment for certain goods sold and delivered by the debtor to the creditor. At the time Registrar Christie made her decision to adjourn the petition, an application to strike out that claim had been made but not heard. Since that time the application has been heard and was refused. The creditor argues that the decision of the Stipendiary Magistrate was wrong and that the matter has been effectively determined by a decision of Registrar Christie on 23 September 2005 when she made a decision refusing to set aside a bankruptcy notice on the grounds that there was no accord and satisfaction or a cross claim in relation to these matters. The creditor’s view of the decision of the Stipendiary Magistrate may or may not be correct but it seems to me that the proper place to make that point is in the South Australian Courts and not in this court.
There is also a supporting creditor, a company in liquidation known as Bernsteen. This company has a judgment for costs against the debtor in the sum of $23,191.80 and an unresolved claim against her of $29,068.55. The debtor says she has a cross claim against Bernsteen to a value in excess of $50,000.00 which, if accepted, would be set off against any debt which she may owe to that company. It is my understanding that if the debtor was successful in her cross claim then Bernsteen would be unsuccessful in its unresolved claim for $29,000.00 odd. There are other unresolved cross claims between Bernsteen and the debtor.
The debtor claims she is solvent. She says that she has tendered payment of the petitioning creditor’s debt and has a substantial cross claim against Bernsteen which would effectively nullify any debt that she has to that company. Bernsteen is not in a position to make any payment to her as it is a company in liquidation. She argues that another petitioning creditor, CFS, who had initially claimed a sum in excess of $20,000.00, has had its claim reduced to some $4,297.53 which has now been paid. What the debtor does not do is provide the court with any evidence about her financial circumstances. There is no affidavit indicating what real property she owns, what is the status of her bank accounts and what other assets are owned by her. There is no evidence of other creditors. There is no evidence that it was the debtor herself who paid the CFS debt or provided the funds for the tender to the petitioning creditor. This lack of evidence meant that Registrar Christie was unable to be satisfied that the debtor was solvent and I am likewise unable to be satisfied of her solvency. As Registrar Christie said in her judgment:
“The debtor has not put before me the strong and tangible evidence necessary to establish that she is able to pay all her debts as and when they fall due (see Weinberg J in Esanda Finance Corporation Limited v Velissaris [1999] FCA 1359 at [17].”
The debtor then argued that there was “other sufficient cause” why the sequestration order should not be made. She sought to distinguish her case from that of McIntosh v Shashoua (1931) 46 CLR 494 where the High Court held:
“The fact that after the commission of an act of bankruptcy and the presentation of the petition the debtor has tendered to the petitioning creditor the whole or part of a debt is not of itself a sufficient cause.”
The ground of distinction appears to be that the tender has been made more than once and that the reason given for the refusal of the tender, namely that it is conditional, is not a proper reason because the debtor has a genuine claim against the creditor and is entitled to pursue that claim. But as Registrar Christie finds the evidence indicates:
“The creditor has given reasons for her refusal to accept tender of the debt. These include the continued legal action over its existence and the concerns over the solvency of the debtor given the other amounts owed/thought to be owed by the debtor.”
The creditor may well be reluctant to accept a tender that could be the subject of a preference claim by the trustee. Registrar Christie deals with the law relating to this aspect of the matter in some detail at page 5 of her judgment and I respectfully adopt what she says thereon.
But the factual circumstances must be looked at as a whole. The debtor has tendered the amount claimed under the petition plus interest. She maintains her continuing action which, if successful, would see the recovery of that money. The sequestration order would have the effect of determining those proceedings. The debtor is also involved in proceedings set down for hearing over a number of days in May against Bernsteen. This is primarily Bernsteen’s claim against her because at the moment no leave has been given for the debtor to cross claim. The creditor argues that in regard to this cross claim it has allegedly been around for over three years but has never been properly quantified. The debtor says that she wished to quantify it through the use of forensic accountants but Bernsteen’s liquidator objected to the accountant she chose and she had to find another. The evidence which I have seen indicates that the cross claim has been slow moving. Another firm of forensic accountants has now been instructed and I have seen a letter from them indicating that their initial view of the cross claim is in excess of $50,000.00 but the debtor has been ordered to put on that evidence within the next few days prior to the hearing of an application for leave to call that evidence in the cross claim. The creditor says that in the unlikely event that the evidence is filed and that the leave is given Bernsteen is likely to ask for an adjournment so that it can answer the evidence. This will further delay the hearing of the petition if the adjournment of the petition is to be continued until past the Bernsteen hearing. The other claim in the Magistrates Court for the $5,000.00 odd allegedly due by the creditor to the debtor has been set down for hearing on 13 June 2006.
The debtor argues that if the sequestration order is made today then all these proceedings will come to an end without final resolution. There was an in arguendo discussion concerning the possibility that the debtor could persuade the trustee to allow her to take over the proceedings but on reflection I think that it is unlikely to happen given the closeness of the trial dates and the trustee’s need to investigate the debtor’s situation and in particular to understand where any finance to run these cases might be coming from.
Whilst I am concerned that a sequestration order made on the basis of a small debt, payment of which has been tendered on more than one occasion, would strangle more valuable litigation I do not think that this provides sufficient cause not to make the sequestration order. The court is mindful of the views expressed by Henchman J of the Supreme Court of Queensland approved in the High Court in Cain v Whyte (1933) 48 CLR 639:
“Prima facie on proof of the matters mentioned in s.52(2) the court will proceed to make an order for sequestration and … it is for the debtor to show some cause overriding the interests of the public in the stopping of unremunerative trading and the rights of individual creditors who are unable to get their debts paid to them as they become due. Something has to be put before the court to outweigh those considerations before it can be said that sufficient is shown against the making of a sequestration order.”
I do not think the existence of the Bernsteen proceedings which are not proceedings against the petitioning creditor, such as those in Ling v Enrobook Pty Ltd (1977) 143 ALR 397 constitute sufficient cause.
Even though the existence of the proceedings may not constitute sufficient cause to dismiss the sequestration order their existence might bear heavily upon an application for adjournment. We are now in April. The proceedings between the debtor and Bernsteen are set down for hearing in May. The proceedings between the debtor and the creditor are set down for hearing in early June. I have heard nothing about any additional creditors but I am aware that the debtor has obtained an order for security for costs in the sum of $6,000.00 against Bernsteen in respect of those proceedings. It is possible, given the existence of these proceedings, that Bernsteen could obtain a similar (and probably larger) order against the debtor if she was permitted to pursue her cross claim.
I have taken all these matters into account when considering whether or not to adjourn this petition. As much as there is a public interest in bringing petitions to finality and thus preventing the possibility of insolvent trading or the incurring of debts a bankrupt is unable to repay there is also the fact that the making of a sequestration order has quasi criminal consequences: Re A Judgment Debtor [1908] 3 K.B. 474. It puts severe restraints upon a bankrupt’s freedom of movement and ability to do business and it is these effects which must be weighed by a court considering an adjournment rather than the prejudice to the debtor or the prejudice to the creditor as suggested by Registrar Christie at [27] of her judgment. In truth evidence on both of these matters is sorely lacking but I note that the debtor has not been totally unsuccessful in her previous litigious skirmishes, e.g. in reducing the CFS debt down to a manageable figure. I am of the view that whilst the current timetable for the forthcoming proceedings remains fixed with hearings in May and June the petition should be adjourned to allow those proceedings to be heard. But if the debtor is unable to mount her cross claim without a significant adjournment or if the claim against the creditor is delayed then the rationale for the adjournment of the petition (the speedy resolution of outstanding disputes) will no longer apply. Registrar Christie was unaware of the date of the hearing of the claim in the Magistrates Court between the creditor and the debtor but I have been informed that it is to take place on 13 June.

I will adjourn the petition until 20 June 2006 but I will grant the parties liberty to apply so that in the event that these hearing dates are not kept to an application can be made for an earlier hearing. The petition and any such application will be returnable before Registrar Christie.
The costs of this application should be reserved.

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

Associate:

Date: