Haack v Laminex Group Ltd
[2005] FMCA 1025
•25 July 2005
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| HAACK v LAMINEX GROUP LTD & ANOR | [2005] FMCA 1025 |
| BANKRUPTCY – Application to set aside Registrar’s sequestration order – extension of time – role of solicitor – whether debtor served – whether solicitor on record retained – solvency – whether other sufficient cause – non-appearance by debtor. |
| Bankruptcy Act 1966, s.52(1), 52(2) |
| Applicant: | KEITH HAACK |
| Respondents: | LAMINEX GROUP LTD (ACN 004 093 092) and VICTORIAN WORKCOVER AUTHORITY |
| File Number: | MLG 391 of 2004 |
| Judgment of: | McInnis FM |
| Hearing date: | 26 May 2005 |
| Delivered at: | Melbourne |
| Delivered on: | 25 July 2005 |
REPRESENTATION
| Counsel for the Applicant: | Mr T Alexander |
| Solicitors for the Applicant: | Tanya Lakic |
| Counsel for the First Respondent: | Mr T Rosen |
| Solicitors for the First Respondent: | Robert Richter & Associates |
| Counsel for the Second Respondent: | Mr B Scheid |
| Solicitors for the Second Respondent: | Scarcebrooke & Associates |
ORDERS
The Application as amended for review of the Registrar’s orders be dismissed.
The Applicant Debtor shall pay the Respondents and the Supporting Creditors costs, including reserved costs, in accordance with the Federal Court Rules and paid from the estate of the Applicant Debtor pursuant to the Bankruptcy Act 1966.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT MELBOURNE |
MLG 391 of 2004
| KEITH HAACK |
Applicant
And
| LAMINEX GROUP LTD (ACN 004 093 092) and VICTORIAN WORKCOVER AUTHORITY |
Respondents
REASONS FOR JUDGMENT
In this application Keith Haack (the debtor) by an application filed on 31 March 2005 seeks to review a decision of the registrar made on 3 March 2005. The decision of the registrar included an order that a sequestration order be made against the estate of the debtor. The debtor pursuant to orders made by this court on 9 May 2005 has sought to rely upon what purports to be an amended application for review filed 26 May 2005.
There was some degree of confusion concerning the precise orders sought by the debtor in this matter and the nature of the application. To remove any doubt the application filed 26 May 2005, though referring to an attachment for "copies orders sought" did not in fact provide an attachment. The orders sought were found in a document entitled ‘Applicant's Outline of Submissions’ also filed on 26 May 2005. Accordingly, it was necessary for the court to make a preliminary order as follows in the matter:-
“The application filed on 26 May 2005 stands as an amended application for review and that the orders sought are deemed to be orders 1, 2 and 3 in the applicant's outline of submissions filed on 26 May 2005.”
Hence, via that circuitous route and with the benefit of the order made during the course of the hearing, the orders sought may now be stated as follows:-
1)That the applicant be granted leave to extend the time to file and serve the amended application.
2)That the order of the registrar be set aside.
3)That the creditors petition be dismissed with costs.
Extension of time
The application for extension of time was opposed. Although the orders were made on 3 March 2005 by the registrar, the application in this matter was not filed until 31 March 2005 and hence the application was a few days late. It was submitted by counsel for the debtor and
I accept that in the circumstances there does not appear to be any significant prejudice to the petitioning creditor, namely, Laminex Group Ltd, or the supporting creditor who is now the second respondent, namely, Victorian WorkCover Authority. Neither respondent could indicate any significant prejudice that might flow from the extension of time being granted. In any event, on the basis of affidavits sworn by the solicitor for the debtor, namely, Ms Tanya Lakic, I am prepared in the circumstances to accept that there is at least a reasonable explanation for the delay. In the exercise of the court's discretion, I am prepared to make an order that the time for filing the application for review of the registrar's orders be extended to 31 March 2005.
The application
In support of the application the debtor relies on affidavits sworn by him on 2 May 2005 and 13 May 2005. He has further sought to rely upon an affidavit of his wife Theresa Haack sworn 2 May 2005, and, as indicated earlier, an affidavit of his solicitor Tanya Lakic sworn 25 May 2005. The applicant otherwise relies upon an outline of submissions filed 26 May 2005. The first respondent, that is, the petitioning creditor, has relied upon an outline of submissions filed 20 May 2005 and, relevantly, apart from the usual affidavit material in relation to the matters required to be proved under the act, has further relied upon affidavits of Samuel Robert Richter affirmed on 6 May 2005 and 20 May 2005.
In support of the application the debtor seeks to raise a number of grounds noting that this is an application for review of a registrar's decision. Accordingly, this is a de novo hearing. The debtor concedes that the burden lies upon him to establish that the discretion ought to be exercised in his favour in relation to setting aside the sequestration order which has been made. It is noted that the debtor having been made bankrupt on 3 March 2005 as a result of the sequestration order did not appear at that hearing. It is otherwise noted the relevant test to be applied is set out in s.52(1) and (2) of the Bankruptcy Act 1966 (the Act) which provides as follows:-
“(1)At the hearing of a creditor's petition, the Court shall require proof of:
(a) the matters stated in the petition (for which purpose the Court may accept the affidavit verifying the petition as sufficient);
(b)service of the petition; and
(c) the fact that the debt or debts on which the petitioning creditor relies is or are still owing;
and, if it is satisfied with the proof of those matters, may make a sequestration order against the estate of the debtor.
…
(2) If the Court is not satisfied with the proof of any of those matters, or is satisfied by the debtor:
(a) that he or she is able to pay his or her debts; or
(b) that for other sufficient cause a sequestration order ought not to be made;
it may dismiss the petition.”
The grounds relied upon by the debtor are as follows:-
a)The applicant was not aware of the bankruptcy proceedings against him and/or of the nature and significance of the proceedings of which he was aware.
b)The applicant was absent from the hearing of the matter.
c)The applicant was solvent at the time the order was made.
d)It is in the interests of justice that the order be set aside.
Ground (a) — The applicant was not aware of the bankruptcy proceedings against him and/or of the nature and significance of the proceedings of which he was aware.
In considering this ground, it is perhaps noteworthy that the creditor had applied in proceedings number MZ 102 of 2002 for an order for substituted service of the relevant bankruptcy notice. The relevant bankruptcy notice was one which relied upon a default judgment obtained by the petitioning creditor against the debtor on 25 September 2003 in the Melbourne Magistrates Court for a total sum of $36,887.59. In those proceedings the debtor was named as a defendant trading as Haco Engineering. The claim by the petitioning creditor was for goods sold and delivered between April 2003 and May 2003. There has been no application to set aside the judgment. The bankruptcy notice issued on 22 October 2003, as indicated, was the subject of an application to the court in the earlier proceedings for substituted service. On 5 March 2004 orders were made by a registrar of the court in the following terms in relation to the relevant bankruptcy notice VN 1664 of 2003:-
(1)Personal service of bankruptcy notice VN 1664 of 2003 is dispensed with.
(2)In lieu thereof, the bankruptcy notice be served by handing a letter addressed to the debtor containing a copy of the bankruptcy notice signed and stamped by the Official Receiver and a sealed copy of this order to Mrs Haack at Lot 4, Knight Avenue, Sunshine, Vic 3020.
(3)Service of the bankruptcy notice be deemed to be effected on 26 March 2004 upon condition that the event referred to in paragraph 2 occurs within 14 days of the date of this order.
Other orders were made by the registrar which do not need to be included in this decision. Pursuant to the orders of the registrar on 5 March 2004, it is noted from the affidavit material relied upon by the petitioning creditor in these proceedings that a process server, Mr Raymund Francis Cocking, deposes in an affidavit sworn on 18 March 2004 as follows:-
(1)On Wednesday, the 17th day of March 2004, at the hour of 11.32 o'clock in the forenoon, I served KEITH HAACK with an envelope containing a letter enclosing a copy of the bankruptcy notice signed and stamped by the Official Receiver and a sealed copy order made by Registrar J. Mussett on the 5th March 2004 by delivering them to Mrs Haack personally at Lot 4, Knight Avenue, Sunshine in the said state.
It is apparent in that affidavit of the process server that the orders made by the registrar have been complied with and that, accordingly, the bankruptcy notice was deemed to have been served on 26 March 2004. It is against that chronology of events that the debtor deposes in his first affidavit the following:-
“2.I have owned an engineering business trading as Haco Engineering at Lot 4 Knight Avenue, Sunshine, Victoria since 1979. I am the sole proprietor of this business and have been since its inception. The business undertakes welding engineering work and employs between three and seven men.
3.Until 2000 I personally ran the business including working on the factory floor and managing the financial and other affairs of the business. During the time I was managing the business, I never had any bad debts or any financial difficulties at all. My wife, Theresa Haack, had worked with me in the business for the past twenty-six years and was responsible mainly for ordering stock.
4.About four years ago in 1999, the work which I used to do on the factory floor was no longer required to be undertaken. As a result, and due to health issues, I decided to stop working at the factory and to return to the land to be a farmer. Although I wanted to sell the factory, my wife wanted to maintain running the business and I relented.
5.At Christmas time of that year, I purchased a run-down farm at Lake Boga and eventually began raising Boer goats on the farm. I was required to move away from Melbourne and my wife, and commenced living at Lake Boga. I have lived there ever since. It is about four hours drive away.
6.I saw my wife less and less over time due to the hours required on the farm and her work at the factory. When I left Melbourne. I still had some involvement in the business but by 2001, due to time and distance, I could not devote any time to the business. My wife commenced the sole management of the business. She was very competent due to the time she had spent working with me over the years and she assured me that she was capable of running the business.
7.From 2001 until 2002 I worked exclusively on the farm.
I would see my wife every few months and ask about the business. My wife generally told me about what was happening and that everything was running well. I did not return to Melbourne for many months at a time.
8.From 2002 until 2004, I did not see my wife at all and only had occasional phone contact. I did not return to Melbourne at all for these two years. During this period I understood that the business was continuing to operate and improve according to my wife and I accepted without reservation what she told me in relation to business’ affairs.”
In her affidavit Mrs Haack provides details of her involvement with the business referred to in the affidavit of Mr Haack. She deposes as follows:-
“2.I have been married to Keith Haack since 1959. I have been involved with the running of the business Haco Engineering since it began in 1979. During that period I was responsible for ordering everything for the business and for paying accounts and other financial matters. I never worked on the factory floor but managed the office with the book-keeper.
3.My husband was responsible for the management of the business and also working on the factory floor. Although
I managed many of the affairs of the company, I relied on him to assist me in the more complex tasks.
4.In about 2000, my husband decided that he would leave the factory to return to farming life and purchased a property in Lake Boga. He had two heart attacks and arthritis and so did not wish to do factory work any longer. The work he did in the factory also ceased. He therefore wanted to sell the business.
5.I wanted to keep the business as I believed it was profitable, although my husband wanted to sell it. He eventually agreed to let me have the business to run as my own. From 2000 onwards he had decreasing involvement with the business and by 2001 he had nothing to do with the business at all. He would ask me in the conversations we had during 2001 to 2003 how it was going and I would always tell him that it was going well and generally tell him about what
I was doing. I would never tell him about any problems as
I could usually solve them and I did not want to worry him as I knew that life on the farm was difficult.
6.It was hard work running the business and I was responsible for all aspects of the business. The business had not dealt with Laminex for some years until about 2002. In that year, they commenced supplying us with particle board. The Laminex account was always limited to $10,000.00. I can remember and believe that Laminex supplied me with large volumes of particle board over and above what I needed and it was stored in the shed. I don’t know how the amount
I owed Laminex became so great.
7.In about 2002 I received correspondence from Robert Richter and Associates about payment of an outstanding account.
8.I tried to correct the account and to come to an arrangement between the business and Laminex. I tried many ways to pay them, but ultimately I could not pay them I that I owed them [sic].
9.There was a lot of pressure on me and I suffer from narcolepsy [sic] and fall asleep if I am confronted by stress. I knew that judgment was obtained against the business in September 2003 I was upset by this and felt that I was failing and should not have attempted to run the business myself. I spoke to my husband very occasionally and never told him anything to do with Laminex. I was very anxious and did not want him to know.
10.After judgment was obtained, I again tried to pay out Laminex by offering them money but the business was not doing very well and I had too many employees and could not afford to pay them. As a result the amount remained outstanding and I just could not pay the money out.
I received a call from a solicitor whom I believe was Mr Robert Richter. He told me that I had to pay the money and that I had committed a criminal offence and could be charged.”
Further in her affidavit in relation to proceedings Mrs Haack deposes the following:-
12.At each subsequent hearing I told my lawyers that Keith knew about the proceeding but was not contactable on the phone. It was not until they confronted me about the fact that he needed to be at Court that I admitted what had happened.
13.At no stage did I ever reveal to my husband the true extent of the problem. When he originally called me to tell me about a summons he received I assured him that the business was running well and that I could take care of this oversight. I was embarrassed and ashamed that I could not run the business properly, especially after I asked to take it over. I regret not being more up-front with him and for the trouble which has been caused.
14.In regards to WorkCover, I knew that the business owed them money. However, I thought the book-keeper had organised it. I don't know much more about the issue than that.”
The debtor refers to what he describes in his affidavit as receipt of what he thought to be a summons in November 2004. Apart from the extract from his affidavit set out earlier he states as follows:-
“9.The only problem which I ever heard about was after
I received a visit from a man who came to the door of the farm and said he had a summons for me. I think he was from Kerang. I remember reading it and thinking that
I should call the solicitor on the paperwork. I cannot recall what the document was about but the man said it was a summons. We exchanged only a few words. I have been informed by my solicitor that the man asked me if I was Keith Haack and I said yes, and if I was the debtor, and
I said no. I do not really remember that conversation, but
I certainly did not believe that anything to do with the business any longer had anything to do with me.”
In that same affidavit the deponent refers to conversations he had with the petitioning creditor's solicitors. Many of the matters raised in the affidavit material of the debtor, it should be noted, are disputed and issue has been taken with those matters, though a number of the issues do not appear to be directly relevant to the matters of concern to the court in dealing with this application. What is relevant is the issue of what is described as a "summons" referred to in paragraph 9 of the debtor's affidavit. I find that the summons referred to by the debtor was in fact the creditors petition. The affidavit of service filed in relation to the petition sworn by Harry William Dunstan, a process server, on 8 November 2004 states the following:-
“1.On Saturday the 6th day of November 2004 at the hour of 11.58 o'clock in the morning I served KEITH HAACK with an official copy of the Creditors Petition of LAMINEX GROUP LTD (A.C.N. 004 093 092) (A.B.N. 98 004 093 092) together with a copy of the Affidavit of Truth of Statements in Petition together with Exhibits thereto sworn by JOHN ANTHONY NESCI on the 21st day of April 2004 and a copy of the Affidavit Verifying Paragraph 4 of the Petition sworn by SAMUEL ROBERT RICHTER on the 21st day of April 2004 by delivering them to him personally at:- 1611 Winlaton Road Lake Boga in the said State.”
In the affidavit the process server refers to statements being made by the debtor at the time in response to the question, "Is your name Keith Haack?" and the answer given "yes", and when asked, "Are you the person referred to in this creditors petition as the respondent debtor?" the answer given allegedly was "no".
The debtor seeks to rely upon the affidavit evidence and in particular seeks to assert that the first he knew of any bankruptcy was by letter that he had received from the solicitors Tanya Lakic. He claims that that indeed was the first time he knew anything about bankruptcy and further states the following:-
“16.The next thing which I heard about this bankruptcy was when I received a letter from Tanya Lakic Solicitors. I only get mail once per week and I probably opened it about 15 March 2005.
17.The letter said that I was made bankrupt and I immediately phoned Theresa and asked her what was going on. I had never heard of Tanya Lakic, or anything to do with any bankruptcy proceedings at all. Theresa explained to me that it was about money owed to Laminex. I could not believe that this had occurred. I was absolutely taken aback by the fact that these proceedings were afoot. She said that
I would have to come to Melbourne and see Ms Lakic.
18.As far as WorkCover is concerned, I have no idea about anything to do with this authority and I do not know why they are involved with me.
19.Previously, the book-keeper I had employed was responsible for all matters related to WorkCover and I am surprised that they say I owe them money. My wife told me that the bookkeeper left in August 2004 and I understood that everything was taken care of by her until then, and my wife after that.
20.I had no idea about these proceedings and believed at all times that my wife had managed the business affairs properly and had taken care of everything to do with the business.”
It was submitted on behalf of the debtor that a signature appearing on a Laminex credit account application was not the applicant's signature and nor did he instruct anyone to act on his behalf. So much is asserted in the second affidavit of the debtor sworn by him on 13 May 2005 where he states the following:-
“1I am the Respondent in these Bankruptcy proceedings and the Applicant in these Review Proceedings. I refer to the affidavit of Samuel Robert Richter sworn on 6th May 2005.
I refer to paragraph 5 of that Affidavit which refers to a Laminex Credit Account Application Form dated 28th March 2003. I was living exclusively at the Farm at Lake Boga at this time and I did not sign the account with Laminex.
I have been shown the Credit Account Application Form referred to as exhibit ‘SRR’ and I am certain that I have not completed the details therein nor did I sign this document.
...
3.That I have never instructed solicitors Sue Thompson of Campbell Lloyd to act on my behalf. I have never even heard of this firm till reading it in Mr Richter's affidavit.”
In fact the document to which reference should have been made would appear to be exhibit SRR2 of the affidavit of Mr Richter sworn on 6 May 2005. Paragraph 5 of the affidavit of Mr Richter provides the following:-
“5.I refer to paragraphs 6 to 8 of the affidavit and note that Keith Haack alleges that after 2001 he worked exclusively on his farm and did not devote any time to the business. Now produced and shown to me and marked with the letters ‘SRR2’ is a copy of a Laminex Credit Account Application form which was provided to me today by the Credit Manager of Laminex, Mr John Nesci. The Application names Keith Haack as the principal of the business, Haco Engineering, and is signed by K. Haack. It appears to be dated 26 March 2003 which is the month before the debt to Laminex was incurred. It also gives his address as Lot 4 Knight Avenue, North Sunshine 3120.”
The application, which is exhibit SRR2, is entitled "Application for a 30‑day commercial credit account". There is a signature which appears on that document. Whilst it is not a matter for the court to undertake an expert analysis of handwriting, a simple comparison between the signature which appears on that document on the page entitled "Terms and Conditions" with the signature of the debtor in the affidavit, the observation which must clearly be made is that both signatures appear very similar. It is not possible for the court to draw any other conclusions beyond making that observation in this instance, save and except it notes the assertion by Mr Haack that he did not sign the document. If he did not sign it, then it is apparent to the court that he ought to be able to suggest who may have signed it on his behalf in relation to the business. In the absence of evidence which would reasonably be available to the debtor, then this court is not prepared to draw any inferences in favour of the uncorroborated evidence of the debtor in his affidavit but instead is prepared to consider the documentary material as it appears before the court and reach a conclusion that at the very least the signature on that application for credit form appears to be very similar to the signature of the debtor in his affidavit filed in this court.
In any event, in support of the first ground it was submitted that the applicant upon becoming aware of his bankruptcy immediately attended upon a solicitor. It was noted that a substituted service order had been made and it was further noted that in this instance there is considerable doubt as to whether or not the solicitor had ever received instructions for and on behalf of Mr Haack. The vague arrangements are apparent from what I regard as an inadequate affidavit from the solicitor Ms Tanya Lakic sworn on 25 May 2005. It is useful to set out the following relevant paragraphs from that affidavit:-
“1.I am a Sole Practitioner and have the care and conduct of this matter on behalf of the Applicant Keith Haack. That
I am authorized to make this affidavit on behalf of Keith Haack and do so from my own knowledge, information and belief save where otherwise stated.
2.That I commenced acting on behalf of Keith Haack on 16th December 2004. This matter was listed before the Federal Magistrates Court and this is the first time I met Theresa Haack. I recall that Mrs Haack stated that her husband Keith Haack could not come to court because he was busy at the farm.
3.In the weeks that followed every time I spoke to Theresa Haack to ask about her husband Keith Haack she told me that he was too busy to talk to me however she clearly stated that Mr Haack knew about these proceedings and she was looking after this for him and in any event the debt was hers and that she had to take care of it. I asked Theresa on several occasions to provide me with Keith's address at the farm and contact telephone number but she refused to. She told me that she could not remember the address of the farm in Lake Boga.
4.I became increasingly suspicious that Keith Haack was not aware of the Bankruptcy proceedings and on the 3rd March 2005 I ceased to act on behalf of Keith Haack. I felt it unethical to continue acting on his behalf as I had no confidence that I was being instructed by Keith Haack to act as his solicitor. In all the time from 16th December 2004 to 3rd March 2005 I had never once spoken to or been contacted by Keith Haack. Further all of the Applicant's legal fees were paid by Theresa Haack directly.
5.That at the Sequestration Order hearing on 3rd March 2005 it was indicated to the respondents counsel that we would make an application for review of the decision if Keith Haack could be located.
6.At the hearing on 3rd March 2005 Counsel for the Second Respondent actually provided me with Keith Haack's address at 1611 Winlaton Road Lake Boga. I then wrote to Keith Haack advising him of the bankruptcy order and seeking his instructions to act on his behalf and lodge a Review of the Decision. I only received instructions from Keith Haack to act on his behalf on 29th March 2005. I filed and served an application for review the following day. This is the reason for the delay in filing the Application for Review out of time.”
Part of the affidavit has been recited earlier in this judgment. However, the extract set out above which effectively sets out all of the contents of the affidavit was relied upon in support of the first ground to suggest the applicant's contention that he honestly and genuinely did not know this his pending bankruptcy should be accepted by this court and that in the circumstances it was submitted the sequestration order ought to be set aside.
There are a number of observations to be made about the material before considering the respondent's submissions in relation to this ground. The first observation is that the debtor by his own evidence has indicated that he has been involved in a business since 1979. Even on his own version of events, that effectively means that he had been running a business for a period of approximately 20 years. It is an engineering business and employed between three to seven persons.
The second matter which arises from the material relied upon by the debtor and in particular his own affidavit is what I can only describe as the extremely vague nature of the debtor's recollections in relation to documents. To refer to a creditors petition as a "summons" in my view is a reference which this court does not accept as being genuine. It is difficult and almost impossible to conceive that a person who had been engaged in business for a period of approximately 20 years would not have the capacity to note that the top of the document has the clear words "creditors petition" in upper case and bold print. The contents of the front page of the petition again clearly refer to the parties and clearly refer to the debt owed. I cannot accept on the evidence currently before me, having regard to the vague nature of the affidavit material referred to in full earlier in this judgment of the debtor, that he failed to understand and/or appreciate at least in November 2004 that a creditors petition had been issued and that the matter was to be heard in the Federal Magistrates Court. It is noted that the date for hearing had changed from time to time. Nevertheless, the document is clear on its face and I reject the evidence of the debtor that he did not fully understand or appreciate in November 2004 that he was the respondent to a creditors petition.
Further, it is noted from the affidavit of the solicitor that it contains what I regard as a number of vague and unhelpful assertions. It is difficult to comprehend how a legal practitioner, that is, a person who claims in her affidavit to be a "current practitioner", could assert, as she does in her affidavit, that she "commenced acting on behalf of Keith Haack on 16 December 2004" and then in the same affidavit assert that she had "never once spoken to or been contacted by Keith Haack" in all the time "from 16 December 2004 to 3 March 2005". As pointed out during the discussion with counsel, there is no evidence before this court from the solicitor purporting to have commenced acting on behalf of the debtor as to the basis upon which she formed that belief. There is simply no evidence of retainer and certainly no evidence of a kind which one might reasonably expect for a solicitor who then proceeded to represent to both the petitioning creditor and to this court that she was a solicitor duly retained by and acting for and on behalf of the debtor.
In matters of this kind, if reliance is to be placed by a debtor on conduct of a solicitor who has not produced evidence of a retainer and then otherwise relies upon affidavit evidence of his wife in order to assert that he genuinely did not know of the impending bankruptcy proceedings, then the evidence would need to be clear and concise. In any event, I am satisfied and find that certainly in November 2004 the debtor was served with the creditors petition and knew then or ought reasonably to have known that it had been served upon him.
The respondents submit that this ground should fail and have further submitted that the mere misunderstanding or ignorance of the nature and extent of the proceedings does not provide a sufficient excuse or basis upon which this court should conclude that the debtor genuinely did not know of the impending bankruptcy and in those circumstances should set aside the sequestration order made in his absence. In my view, those submissions are correct. They are correct for the reasons already given, namely, based upon what I regard as hopelessly inadequate affidavit material in support of the applicant's contentions.
The court notes that in this matter a notice of appearance was filed on 11 January 2005 by Tanya Lakic indicating that she was the solicitor for the debtor. When solicitors purport to act for and on behalf of a party, then the court and indeed other parties are entitled to expect that there has indeed been a retainer, that the person in other words acting as solicitor has been properly retained. To simply assert that a solicitor "commenced acting on behalf" of a party is insufficient. At the very least one might expect some evidence as to who gave the solicitor instructions and whether or not that person had indeed the authority or power to instruct the solicitors to act for and on behalf of another party. The court has not been provided with that evidence. In my view, given the failure of the evidence provided to in any way support this ground, it is clear that it should fail.
It should be noted further that the supporting creditor in this application relied upon an affidavit of Victor Scarcebrook sworn on 6 May 2005. That affidavit is relevant in considering the state of knowledge claimed by the debtor both in relation to the creditors petition and indeed his claimed lack of knowledge of any debt owed to the supporting creditor, that is, to Victorian WorkCover Authority. Mr Scarcebrook's affidavit deposes as follows:-
“5.In mid-2001 I commenced a proceeding in the Magistrates Court of Victoria against Keith Haack with respect to unpaid Workcover premiums of approximately $6000 for the financial years 1999/2000 and 2000/2001 ("PO1272459"). I received a report from a process server attempting to serve Keith Haack at 4 Knight Avenue Sunshine Victoria that Keith Haack could not be located at that address but the process server had spoken to a person who identified herself as Theresa Haack and advised the process server that Keith Haack was her husband and her husband lived in Lake Boga in Victoria, but she declined to provide an address for him.
6.Shortly thereafter I successfully applied to the Magistrates Court of Victoria for an order in PO1272459 that my client be entitled to effect service by ordinary mail to the Sunshine address, and I did so serve the Complaint.
7.On 4 December 2001 a default judgment was obtained against Keith Haack in PO1272459.
8.I have been told by officers of CGU that the judgment debt in PO1272459 was satisfied in the first half of 2002 and the Workcover account in the name of Keith Haack became regular, payments continuing with respect to new premium debt for another 6 months or so, the account then falling once again into arrears.
9.I have been told by officers of CGU that diary notations of communications with persons at the business (conducted at the Sunshine address) maintained by those officers suggest that persons other than Keith Haack were involved in the communications but at no time was there a direct communication with Keith Haack.
10.I have been further told by officers of CGU that at no time was any representation made by any person apparently working at or associated with the business to the effect that the business was not owned by Keith Haack or that the Workcover account should not be held in the name of Keith Haack.
11.In mid-2003 I was once again given instructions to commence a recovery proceeding against Keith Haack for unpaid Workcover premiums for the financial years 2000/2001 to 2002/2003 ("RO1324206") in the sum of $14,450.53.
12.I have on my file with respect to RO1324206 a copy of an Affidavit of Service in which the process server deposes to having served the complaint in RO1324206 on Theresa Haack on 24 July 2003. A true copy of that Affidavit marked "A" is annexed hereto. Service was in accordance with the Rules of the Magistrates Court of Victoria.
13.On 6 October 2003 a default order was made by the Magistrates Court of Victoria in RO1324206.
14.I was subsequently instructed by CGU officers to commence a bankruptcy proceeding against Keith Haack.
15.I prepared an appropriate Bankruptcy Notice and arranged for service to be effected on Keith Haack. Annexed hereto and marked "B" is a copy of an Affidavit of Service of the said Bankruptcy Notice, in which the process server deposes to having served the Bankruptcy Notice on Keith Haack on 2 June 2004.
...”
An analysis of exhibit "B" to the affidavit of Mr Scarcebrook shows that a process server, Mr Kenneth John Butler, deposes that on a Wednesday, 2 June 2004, at 3.45 o'clock in the afternoon he served Keith Haack with the copy of the bankruptcy notice and did so by serving the documents on him personally at 1611 Winlaton Road, Lake Boga 3584. The affidavit of the process server also sets out that he asked the person, "What is your full name?" and that the person replied, "Keith Haack". The affidavit further deposes that the process server asked, "Are you the person referred to as the debtor in these proceedings?" and the person replied "yes". It is sufficient to refer to that affidavit material which culminates in the service of the bankruptcy notice upon the debtor on 2 June 2004. Again, in my view, that is further material to support the conclusion I have already reached whereby I reject the debtor's suggestion that he was not familiar with the documents or not aware of bankruptcy documentation when clearly in other proceedings, that is, those commenced by the issue of a bankruptcy notice by the Victorian WorkCover Authority, he had been served, according to the affidavit material, personally with a bankruptcy notice as early as 2 June 2004. The first ground should fail.
Ground (b)
The suggestion that the applicant was not at the hearing matter and that the rules of procedural fairness require the respondent to be given an opportunity to present his case at the hearing in my view should also fail. It fails for the simple reason that I am not satisfied that in all the circumstances the debtor has conducted himself in a way which should now permit him to have the decision made by the registrar set aside simply on the grounds of non‑appearance.
As this is an application for review, it is, however, appropriate for the court to further consider other issues on an application which effectively involves a hearing de novo. I am not satisfied due to the inadequacy of the material currently before me that the absence of the debtor at the hearing at which the decision was made to make a sequestration order has been satisfactorily explained to the point where the petitioning creditor should be prejudiced by automatically setting aside a sequestration order based simply upon the non‑appearance of the debtor. The non‑appearance of the debtor, in my view, has not been adequately explained because I am satisfied that the petition was indeed properly and appropriately served upon the debtor in November 2004 and was served at a time when that debtor had previously received a bankruptcy notice issued by the Victorian WorkCover Authority. As a businessman of 20 years' experience, I conclude he ought reasonably to have known the consequences of the proceedings and the fact that the proceedings were on foot would clearly alert him to the fact that he needed to attend to the matter rather than just, in my view, 'sit on his hands' and do nothing about the matter until after the sequestration order was made.
Ground (c)
Ground c seeks to assert that the debtor was solvent at the time the sequestration order was made. A reference again to the material on the court file, that is, the affidavit material of the debtor, reveals what can only be described as vague assertions in relation to the issue of solvency. The inadequacy of that material appeared to be conceded by counsel for the debtor and it was suggested that further material could be provided. Given that this matter had already been adjourned on a previous occasion and the debtor provided with the opportunity of filing an amended application for review and supporting affidavit material and noting as I do that the petition was in fact filed on 21 April 2004, I am satisfied that it is not appropriate to permit the debtor in these circumstances when faced with the inadequacy of his material in relation to solvency to be granted further time within which to provide additional material. Hence, it is appropriate that I refer to the material currently relied upon by the debtor in support of the submission in relation to solvency. In his affidavit sworn 2 May 2005 the debtor deposes as follows:-
“21My financial affairs are such that I own a number of properties in Sunshine and the farm at Lake Boga. Even though I have mortgages on these properties, I easily have enough equity in a number of properties to be able to pay out the amounts outstanding. Had I have known about this debt I would have immediately come to Melbourne and sorted things out. I have long wanted to sell the business and liquidate the properties and that is what I would have advised my wife to do had she told me about this.
22.I honestly believed that the business had nothing more to do with me since 2001 and I did not understand that I could be liable for the debts of the business even though I had not worked there for three years. I trusted my wife and believed what she told me about the business. I also trusted that Mr Richter would sort it out with my wife as he said in the phone call. He was friendly and I assumed that if anything serious was happening he would call me as he had before. As soon as I received the letter from Ms Lakic I made arrangements to come to Melbourne to sort it out. I value my personal and business reputation.”
In his second affidavit sworn 13 May 2005 the debtor states the following:-
“4.That I have placed my properties at Lot 4 and Lot 5 Knight Avenue Sunshine on the market to be sold. They are being sold by agents Douglas Kaye estate agents and the auction is proposed to take place in June 2005. I have been advised that these properties will be sold for three hundred and twenty five thousand dollars and the current debt on these properties is one hundred and sixty seven thousand dollars. Therefore there will be enough from the proceeds of the sale of these properties to repay the debt to laminex and to the Victorian WorkCover Authority.”
It should be observed that in referring to arrangements to auction properties, it seems clear that the debtor has made those arrangements after becoming bankrupt. For the present purposes, although there is no affidavit evidence to support conclusively the conclusion that the trustee was notified, I accept and it appears to be common ground that indeed the trustee has been notified of an endeavour by the debtor to sell properties or at least to seek permission to sell properties. I draw no further conclusion in relation to that matter.
Of more crucial significance, however, is that the debtor in circumstances where solvency is asserted has an onus to establish solvency and ought to take the court into his confidence by providing appropriate and detailed evidence concerning his financial circumstances. Again, in this instance the affidavit evidence is deficient. There are no precise details given of the ownership of the properties asserted to be owned by the debtor. There is no evidence given of the debtor's financial circumstances, that is, income and expenses. There is insufficient evidence which would encourage this court to conclude that the debtor is able to pay debts as they fall due. The fact that there are now two creditors owed what are uncontradicted amounts, at least with a judgment which still stands in relation to the petitioning creditor, satisfies me that in the circumstances, in the absence of any further material from the debtor, that this court could not reasonably conclude that he is solvent. In the normal course of events one would at least expect there to be some analysis of the debtor's current cash reserves and/or other resources which may at the relevant time demonstrate an ability to pay his debts. Instead, there is a vague assertion of some properties, no evidence of ownership of those properties by way of production of title deeds and indeed no evidence as to the value other than a mere assertion by the debtor in his affidavit in the extract referred to above. In those circumstances I am not satisfied that the debtor has discharged the onus of establishing solvency.
Ground (d)
As I understand this ground, the debtor seeks to argue that in the circumstances it would be in the interests of justice that the order be set aside. Reliance is placed upon the claimed lack of knowledge or lack of consent to the original debt incurred by the debtor to the petitioning creditor. In my view, the mere non‑presence of the debtor in these circumstances and in general his conduct in making assumptions about his own personal liability without there being any formal transfer of the business name to any other party leaves the debtor vulnerable to claims for debt arising out of the business and it is not in the interests of justice that creditors dealing with that business who have no knowledge of what may or may not be the structure or circumstance of that business, particularly as between a husband and wife, should not be disadvantaged by, in these circumstances, an assertion at this late stage that the debtor had no knowledge of the debt.
No attempt has been made by the debtor to set aside the judgment debt which formed the basis of the bankruptcy notice and which has been relied upon in the creditors petition in these proceedings. Overall, in my view, the affidavit material demonstrates a lack of credit on the part of the debtor and the court is not encouraged to rely upon assertions made by him as to why he was unable to attend hearings in relation to judgment debt or, upon becoming aware of judgment debts, has not taken any steps to set aside the judgment. It is perhaps not surprising that no attempt has been made to do so given the affidavit material of the debtor and his wife that the business continued to operate, albeit perhaps under the day‑to‑day control of the debtor's wife, but nevertheless under the same name as it had been conducted by the debtor himself for a period of some 20 years.
I cannot see any basis upon which it could be claimed that there is other sufficient cause, which may include the interests of justice, which would persuade this court to exercise its discretion to set aside the sequestration order of the registrar. It is clear to me on the evidence before the court that debts to both the petitioning creditor and supporting creditor remain due. Both debts remain unpaid and, in my view, remain unpaid due to the lack of solvency of the debtor for the purposes of the Bankruptcy Act 1966. I am otherwise satisfied that the requirements of the Bankruptcy Act 1966, including the matters required to be proved under s.52, have been established. In the circumstances the application for review of the registrar's decision as amended should be dismissed with costs.
I certify that the preceding thirty-eight (38) paragraphs are a true copy of the reasons for judgment of McInnis FM
Associate:
Date: 25 July 2005
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