HELOU v Toubia - [2005] FMCA 375

FEDERAL MAGISTRATES COURT OF AUSTRALIA

HELOU v TOUBIA

[2005] FMCA 375

BANKRUPTCY – Hearing of application for Sequestration Order – where solvency alleged – whether evidence satisfies the Court.

Bankruptcy Act 1966 (Cth), s.52

Sandell v Porter (1966) 115 CLR 666
Re: Sarina Ex parte Wollondilly Shire Council (1980) 32 ALR 596

Applicant:

GEORGE HELOU

Respondent:

MICHAEL TOUBIA

File Number:

SYG2768 of 2004

Judgment of:

Raphael FM

Hearing date:

22 March 2005

Date of Last Submission:

22 March 2005

Delivered at:

Sydney

Delivered on:

22 March 2005

REPRESENTATION

Solicitors for the Applicant:

Sally Nash & Co

Counsel for the Respondent:

Mr C Wood

Solicitors for the Respondent:

Konstan Lawyers

ORDERS

Sequestration Order made against the estate of Michael Toubia.
Thomas William Frederick Dixon of Level 6, 460 Church Street, Parramatta be appointed the trustee of the estate of the debtor.
Applicant's costs of the petition be paid from the estate of the debtor pursuant to the provisions of the Bankruptcy Act, the Federal Court Act and Rules

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
SYDNEY

SYG2768 of 2004

GEORGE HELOU

Applicant

And

MICHAEL TOUBIA

Respondent

REASONS FOR JUDGMENT

The proceedings before me are the hearing of a sequestration order application brought by a substitute applicant against the respondent pursuant to a creditor's petition numbered SZ2768 of 2004 filed on 7 September 2004.
Originally there were two grounds of opposition to the petition. The first ground being that the Bankruptcy Notice which was served upon the applicant did not contain details of the interest calculation. In support of that submission the respondent debtor gave evidence and produced a bundle of documents which he said had been served upon him and which he claimed that he sent immediately to his solicitors. The intention of the evidence being to establish that the documents which he sent including the Bankruptcy Notice did not contain the relevant calculations.
Unfortunately the document which was sent to the solicitor was the creditor's petition and although it had annexed to it a copy of the Bankruptcy Notice it is quite clear that no satisfactory evidence relating to the service of the Bankruptcy Notice has been produced. When I pointed this out to Mr Wood who appears on behalf of the debtor he rightly withdrew that ground.
The second ground relied on by Mr Wood and the debtor is that the debtor is solvent. Therefore in the exercise of my discretion, I would not make the sequestration order. The debtor is a builder and part time property developer. He appears to have three major companies, Michael Toubia Constructions Pty Limited, Michael Toubia Formwork Pty Limited and MMT Pty Limited. The latter company, he says, is owned and directed by his wife.
Michael Toubia Constructions Pty Limited was the construction company through which he carried on his business, but as a result of a string of unfortunate building contracts, it appears to have ceased trading with some outstanding debts. Many of these debts were personally guaranteed by the debtor and many of the personal guarantees found their way into caveats on the three properties which he claims he owns in his own name or in the name of himself and his wife.
Mr Toubia tells the court that he is paid $2,200 a week approximately by the formwork company which is still operating. He says that this is paid to him either in cash or by cheque without deductions. In order to establish his solvency which is defined in s.5 of the Bankruptcy Act 1966 (the “Act”) means that he is able to pay all his debts as and when they become due and payable, Mr Toubia filed an affidavit. The affidavits sets out his wage, the rental income he receives from one of the properties which is a duplex and notes as deductions his mortgage payments, a sum for food, gas and electricity, telephone and petrol.
It is immediately apparent that rates, clothing, entertainment, car insurance and the other general expenses of living do not feature in this document. The document goes on to list the applicant's debts and liabilities. These consist of a loan from the petitioning creditor, a debt owed to Readymix Concrete and some other debts unlisted. It does not appear to make any reference to the applicant's liabilities under certain guarantees, particularly guarantees given by the construction company and, even more relevantly, a loan taken out from a Gwen Rayner of approximately $500,000 at a rate of interest, which according to the debtor’s evidence, could be two percent a month or possibly 20 percent per annum. This loan had been taken out by himself, his wife and the construction company.
The debtor then lists certain assets being three properties which he owns. The value of the properties are spoken to by kerbside appraisals done by a local real estate agent. I have no reason to believe that these figures are not genuine although they are not “valuations”. The debtor then lists his furniture and electrical goods valued at $20,000 as other property. He does not refer to his motor vehicles although he says they are only worth $10,000. He does not refer to his interests in companies which own property nor does he refer to the purchase of a site in Erskineville for approximately $10 million although he says that this purchase was made by MMT and he has no personal interest in that company.
The applicant produced as exhibit 2 a document which he had obtained from the National Australia Bank who appear to be his main bankers. This document gave a payout figure for amounts owed by the applicant and his companies, all of which he had guaranteed to the bank as at

21 September 2004. The figure was $3,991,251.62. The amounts owing included an amount owing on a visa card of $20,944 which, in cross‑examination, Mr Toubia told counsel for the applicant, had been closed off and was being repaid slowly.
The interest rates quoted by the National Australia Bank in respect of the loans on the properties which Mr Toubia referred to in his own affidavit are approximately seven percent. My calculation is that the amount which he states in his affidavit as being outstanding on those loans totals some $1.285 million. A seven percent rate of interest on that sum comes to approximately $90,000 per annum. The figure which Mr Toubia gives as his mortgage payments total $52,000 per annum.
As I explained to Mr Wood in arguendo the affidavit and the evidence of Mr Toubia does not satisfy me that he is a person who is able to pay his debts as and when they become due and payable. I am not at all clear what all his debts are. What I do know is that he has given evidence that a number of creditors have brought him to the brink and he has managed somehow or other to pay them off. But that is not paying all your debts as and when they become due and payable, it is paying selected debts as and when they become due and payable and it creates the possibility of the recipients of the payments having to disgorge them as preferences.
In support of his application, Mr Wood referred me to two seminal cases; Sandell v Porter 1966 115 CLR 666 and Re: Sarina Ex parte Wollondilly Shire Council 1980 32 ALR 596. In Sandell v Porter, his Honour the Chief Justice, discussed at 670 what is required to establish insolvency. He states:
“The conclusion of insolvency ought to be clear from a consideration of the debtor's financial position in its entirety and generally speaking ought not to be drawn simply from evidence of a temporary lack of liquidity. It is the debtor's inability, utilising such cash resources as he has or can command through the use of his assets to meet his debts as they fall due which indicates insolvency.”
Mr Toubia gave evidence that he proposed to institute a re-financing of his properties so that he could pay out his current creditors which included the petitioning creditor and, presumably, the supporting creditor. But he also gave evidence that he had wished to do that six months ago in September 2004 when the National Australia Bank produced a settlement statement for him. His failure to carry out that re-financing in six months seems to me to indicate that he cannot utilise his assets in the manner suggested and required by his Honour, Barwick CJ.
I am not satisfied that this debtor is able to pay his debts as and when they become due and payable. I believe that his evidence in this regard is unsatisfactory, that there are far too many omissions from the affidavit which was meant to be full and frank with the court and that I should not on those grounds exercise any discretion not to grant the applicant a sequestration order.
The appropriate affidavits have been filed and I am otherwise satisfied of the requirements of s.52 of the Act. I would propose to make a sequestration order against the applicant who has asked that such an order be stayed until 4 pm on 24 March 2004. Whilst I have some sympathy with the applicant I am concerned that his history has been to pay off his creditors in this piecemeal fashion and I do not believe that public policy would approve of that manner of going about his business. It could create, as I have said, a situation where persons who have been paid in good faith find that they are required to release the moneys paid back to a trustee when eventually a sequestration order succeeds.
I order that the estate of Michael Toubia of 51 Murray Street, Merrylands, New South Wales, be sequestrated.
I have received a consent to act as trustee from Thomas William Frederick Dixon of Level 6, 460 Church Street, Parramatta and I order that Mr Dixon be appointed the trustee of the estate of the debtor.

I order that the applicant's costs of the petition be paid from the estate of the debtor pursuant to the provisions of the Bankruptcy Act, the Federal Court Act and Rules.

I certify that the preceding seventeen (17) paragraphs are a true copy of the reasons for judgment of Raphael FM

Associate:

Date: 22 March 2005