Jacobsen Venue Management Pty Ltd v Jacobsen
[2011] FMCA 484
•28 June 2011
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| JACOBSEN VENUE MANAGEMENT PTY LTD v JACOBSEN & ANOR | [2011] FMCA 484 |
| BANKRUPTCY – Creditor’s Petition – preliminary issue – attempt to tender the debt – monies refused – whether for other sufficient cause a Sequestration Order ought not be made – sufficient cause not established. |
| Bankruptcy Act 1966, ss.40(1)(g), 49, 52, 188 |
| Australia & New Zealand Banking Group Ltd v Foyster [2000] FCA 400 Bank of Western Australia Ltd & Anor v Loiterton (No.2) (2006) 230 ALR 339 McIntosh v Shashoua (1931) 46 CLR 494 Noel Ling v Enrobook Pty Ltd [1997] FCA 226 Re Schmidt; Ex parte Anglewood Pty Ltd (1968) 13 FLR 111 Walker v Wimborne (1976) 137 CLR 1 |
| Applicant: | JACOBSEN VENUE MANAGEMENT PTY LTD (ACN 050 069 577) |
| First Respondent: | KEVIN GEORGE JACOBSEN |
| Second Respondent: | BILLIE LORRAINE JACOBSEN |
| File Number: | SYG 311 of 2011 |
| Judgment of: | Lloyd-Jones FM |
| Hearing date: | 17 June 2011 |
| Delivered at: | Sydney |
| Delivered on: | 28 June 2011 |
REPRESENTATION
| Solicitors for the Applicant: | Ms N. Tyson of Addisons Lawyers |
| Counsel for the Respondents: | Mr M. R. B. Levet |
| Solicitors for the Respondents: | Mr G. McCartney of Simmons & McCartney |
ORDERS
The oral Application made on behalf of Kevin and Billie Jacobsen on 17 June 2011 to dismiss the Amended Creditor’s Petition dated 29 April 2011, is dismissed.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SYG 311 of 2011
| JACOBSEN VENUE MANAGEMENT PTY LTD (ACN 050 069 577) |
Applicant
And
| KEVIN GEORGE JACOBSEN |
First Respondent
| BILLIE LORRAINE JACOBSEN |
Second Respondent
REASONS FOR JUDGMENT
This matter appeared in the Registrar’s list on 14 June 2011, at which time the parties indicated the matter concerned an opposed Creditor’s Petition and sought the matter to be referred to this Court for resolution. The matter was adjourned to Friday 17 June 2011, for hearing.
The proceedings comprised a Creditor’s Petition seeking orders for Sequestration against Kevin George Jacobsen and Billie Lorraine Jacobsen. The Petitioning Creditor is Jacobsen Venue Management Pty Ltd which proceeds on an Amended Petition dated 29 April 2011. The proceedings commenced on 24 February 2011 by an Application brought by Time of My Life Pty Ltd. On 20 April 2011, Registrar Ng granted leave to Time of My Life Pty Ltd to withdraw and ordered that any Amended Creditor’s Petition of Jacobsen Venue Management Pty Ltd and supporting affidavits be filed and served by 2 May 2011. On 5 May 2011, Registrar Segal made orders including an order under s.49 of the Bankruptcy Act 1966 (“Bankruptcy Act”) that Jacobsen Venue Management Pty Ltd be substituted as Petitioning Creditor. Jacobsen Venue Management Pty Ltd and Time of My Life Pty Ltd are related parties. Appearances have also been filed by other related entities being Jacobsen Holdings Pty Ltd and Dirty Dancing Services Pty Ltd.
The position advanced on behalf of Jacobsen Venue Management Pty Ltd is that Billie and Kevin Jacobsen have committed Acts of Bankruptcy pursuant to s.40(1)(g) of the Bankruptcy Act. On 27 January 2011 both Billie and Kevin Jacobsen were served with various Bankruptcy Notices including Bankruptcy Notice 5950 of 2010 for Time of My Life Pty Ltd dated 16 December 2010. The Bankruptcy Notice was addressed to both Kevin and Billie Jacobsen. The debt the subject of the Bankruptcy Notice was over $5000.00 and was in respect of two judgments of the Supreme Court of New South Wales, both dated 9 December 2010. The Bankruptcy Notice gave an address for payment in Australia and attached a sealed copy of the judgments.
Time of My Life Pty Ltd filed a Creditor’s Petition commencing these proceedings, relying upon the unsatisfied Bankruptcy Notice. No Application was made within 21 days of service of that notice, which expired on 17 February 2011, to set-aside the Petition.
Background
In setting out the following background material, I have relied upon the summation given by Mr Levet as part of his opening address. The information is provided to assist in the understanding of the nature of the proceedings before the Court and not to establish any evidentiary point.
Mr Levet indicates that there has been litigation involving two halves of a warring family, the Jacobsen family. The two brothers, Kevin Jacobsen and Colin Jacobsen, through instruments which each of them had, owned a 50% shareholding in a group of companies which, for ease of description, is known as the Jacobsen Group of companies. Some decades ago, the brothers had been involved in a musical band which was known as Col Joye (Colin Jacobsen) and Joy Boys. Mr Kevin Jacobsen was also involved.
Subsequently, the brothers became involved in a successful and lucrative entertainment business as entertainment promoters, which operated in a group of corporate identities which conducted the joint interest of each of them, and the interest of the group as a whole. Mr Levet suggests that each of the corporate entities contained in the group were merely an instrument of partnership and that it was an equal partnership between Mr Colin Jacobsen and Mr Kevin Jacobsen. Following the successful operation of the group for a considerable number of years, the next generation of Jacobsens were brought into the business. Mr Kevin Jacobsen’s son, Michael, and Mr Colin Jacobsen’s daughters, Amber and Lucy, both joined the business. Following the introduction of the second generation, a dispute arose.
As a result of that dispute, the board of the Jacobsen Group voted to remove Michael Jacobsen as an office holder and therefore there was a further dispute between the parties. The culmination of that dispute resulted in a document being prepared by Kemp Strang solicitors which has been identified as the “Kemp Strang Agreement” which is a very significant document occupying a number of volumes.
The Kemp Strang Agreement provided for an equal dissolution of assets but contained a trigger mechanism that if a party were to become insolvent, then their assets would, in practical terms, revert to the other party. Mr Levet acknowledged that the structure of the document was far more complicated than that but in practical terms, that was the effect.
One of the assets was a corporate entity called Time of My Life Pty Ltd in respect of which there was a one-half share held in another corporate entity, Kevin Jacobsen Pty Ltd, which was the corporate entity of Billie and Kevin Jacobsen and the other half, being held in a corporate entity called Zulus Pty Ltd, which was the corporate entity of Colin Jacobsen’s side of the family.
Mr Levet contends that in practical terms, money was pledged by the Kevin Jacobsen side of the family through one of his corporate entities for the betterment of the group as a whole. The arrangement was that when any money became available, it was put into one of the entities and repaid at a later date and this arrangement had been ongoing for a number of years. However, following the removal of Michael Jacobsen from the board, there was a refusal to pay an amount of money that the partnership owed the interests of Kevin Jacobsen Pty Ltd. As a result of that, there was a breakdown in the family relationship, resulting in the Kemp Strang Agreement which was a document designed to separate out the interests, as it were, of the warring factions which contained a clause which caused a share aversion in the event that either party became impecunious. The major asset of Time of My Life Pty Ltd was a right to the production, worldwide, of the Broadway show called “Dirty Dancing” and the rights that were contained to stage that show in various parts of the world, resulting in it being a very significant asset, worth some millions of dollars. There were also interests in a piece of real estate called “Vector Arena” in New Zealand, which is also worth some millions of dollars.
Mr Levet suggests that what had occurred was that one half of the family had ended up with everything (the Colin Jacobsen side) and the other-half had ended up with nothing (the Kevin Jacobsen side). Mr Levet contends that as a result of the clause contained within the Kemp Strang Agreement, there had been ongoing litigation in a number of forums relating to this matter and to date, the Kevin Jacobsen side had been unsuccessful. There is further litigation involving a third party which is a company called “Offstage” concerning an action arising from a debt which had been assigned from a third party. These proceedings were also unsuccessful for the Kevin Jacobsen interests.
Attempt to tender the debt
Mr Levet advised the Court that the Applicant Creditor moves on an Act of Bankruptcy in respect of a debt in the sum of $5,710.92. An attempt was made to tender the debt on Thursday 16 June 2011 but the monies were refused. Mr Levet indicates that he again seeks to tender to Ms Tyson a cheque in that sum drawn on the Law Practice Trust Account of his instructing solicitors.
Refusal of the tender
Ms Tyson advised the Court that her client’s position is that it does not accept the tender of the cheque and wishes to proceed with the Creditors Petition. She confirmed that the debt was tendered on Thursday 16 June 2011 and was refused. The position is that her client relied on two authorities of McIntosh v Shashoua (1931) 46 CLR 494 in the joint judgment of Gavan Duffy CJ and Dixon J where their Honours state:
The fact that after the presentation of the petition the debtor tendered payment of the assigned debt, and the tender was refused, cannot in this case affect the result. A petitioning creditor is entitled to refuse payment and proceed with the petition — In re Gentry, (1910) 1 KB 825
In support of this position, their Honours refer to the case of re Gentry (1910) 1 KB 825. In the same decision, his Honour Starke J states:
It would be quite contrary to the spirit of the Bankruptcy Act to compel the creditor to receive payment after the debt after an available Act of Bankruptcy had been committed.
His Honour also refers to the King’s Bench decision in re Gentry (supra).
Additionally, in Australia & New Zealand Banking Group Ltd v Foyster [2000] FCA 400, the ANZ Bank was seeking to bankrupt Mr Foyster on a judgment debt of approximately $47,000.00. That debt had been tendered by counsel during the course of the hearing and was refused by the bank and at [7] refers with approval of the approach taken by Starke J from McIntosh v Shashoua (supra).
Ms Tyson contends that above authorities are consistent with the spirit of the Bankruptcy Act. In this matter we have an issue where subject to the Petitioning Creditor proving the formal matters, including the Act of Bankruptcy, it is then up to the debtor to show, under s.52 why an order for Sequestration should not be made. This is a position where there are other supporting creditors based on judgment debt obtained in their favour. Ms Tyson advised the Court that she was in the possession of affidavits of debt from supporting creditors.
In the affidavit of Grant McCartney (solicitor for the Respondents) sworn 19 April 2011, which annexes a letter (annexure A) which makes reference to some debts that are alleged by the creditors, but at the bottom of the page it states:
The alternative quite simply is for my clients to appoint trustees pursuant to s.188 of the Bankruptcy Act with a view to calling a meeting of creditors.
It appears they have personal creditors in excess of $2,000,000.00, most of whom I am instructed will vote in my client’s favour if you press for Sequestration. There are no current demands in respect of those creditors.
You will note that my calculation of outstanding amounts is $22,100.67 taken off your correspondence of 31 March, 2011.
Ms Tyson tendered two affidavits of debt from supporting creditors. Ms Tyson contends that both supporting creditors rely upon judgment debts of the Supreme Court of New South Wales, which are unpaid, one of them unpaid in its entirety and the other partially paid under a garnishee order issued on their bank account of one of the Respondents. Ms Tyson indicated that her client’s position was that it was in the public interest for the creditor to be entitled to refuse the payment and proceed to Sequestration pursuant to the intention of the Bankruptcy Act.
Submissions by Mr Levet
Mr Levet contends that s.52 of the Bankruptcy Act gives the Court a number of discretions.
52(1) Proceedings and order on creditor's petition
(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.
52(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.
Mr Levet contends that the legislation is predicated on the Court having a certain amount of discretion in relation to these matters. Taking into account that element of discretion, Mr Levet wished to refer to the reasons the rejection of the payment should be taken into account. In respect to the affidavits of debt tendered by Ms Tyson, the debts contained therein are all judgment debts owed to various companies within the Jacobsen Group. He submits that it is not as though the debts involve third party creditors. Mr Levet argues that the Jacobsen Group had two controlling minds originally, that being Kevin Jacobsen and Colin Jacobsen and all of the companies contained within the group were in fact mere instruments of a partnership between them. In support of this contention, Mr Levet relies on a the decision in Walker v Wimborne (1976) 137 CLR 1 per Mason J at [7] where his Honour refers to groups of companies with a controlling mind, being instruments of the business.
Mr Levet argues that there has been an ongoing litigation and that the Colin Jacobsen Group of companies, as it were, had thus far been successful in that litigation and have had the fruits of all of the partnership as it used to be. Kevin and Billie Jacobsen did not become indebted to third parties as a result of expending monies on their own account, but they had expended money at the behest of the Group. The Group then placed them in a position where it did not give them access to the monies to repay their own indebtedness which has been incurred on behalf of the Group. That is the position of Kevin and Billie Jacobsen. Mr Levet argues that it would be very different if the supporting creditors were third parties. In practical terms, the debt owed is by a corporate entity within the Jacobsen Group.
Mr Levet advances the argument that the reason why the other side wishes not to accept the money is quite simple, in that they are using it as a strategy to close down the litigation. Mr Levet acknowledges that the cases relied upon by the other side address in general terms that a creditor does not have to accept a payment after an Act of Bankruptcy has been committed and that there are a number of reasons why the law has developed in that way.
One reason arises from the issue as to whether any such payment was preferenced and whether there was a preferring of their interests over another which might result in a claw-back. This is the most significant reason for this development. However, in this matter, the only creditors that are pressing for payment are corporate entities within the Jacobsen Group who are owed money by way of cost orders. Mr Levet submits that in these circumstances, the issue of preferences does not arise. Mr Levet refers to the affidavit of his instructing solicitor, Mr G McCartney filed in Court on 17 June 2011. That affidavit identifies people who are not part of the Jacobsen Group of companies but at this stage are not pressing for repayment and are not seeking to be substituted.
Mr Levet submits that Ms Tyson relies on a letter from his instructing solicitors in which it is said that it might well be proposed under s.188 of the Bankruptcy Act to seek the appointment of a trustee by way of a creditor’s arrangement and an indication that those creditors would indeed support such an arrangement. Mr Levet indicates that his instructing solicitor, Mr McCartney, in his affidavit makes the point that those creditors are not currently pressing and would support such an application. Consequently, in practical terms, what is left is a moderately modest amount of money which is being used to close down litigation by seeking a Sequestration. Mr Levet submits that given that there is a tender of the amount that is sought of $5,710.92 that the Court should exercise its discretion to dismiss the Petition and allow a retender of that amount as the tender remains open.
Submissions by Ms Tyson
Ms Tyson submits that as s.52(2) of the Bankruptcy Act is being relied upon by the other side, the onus is on Mr Levet to establish that s.52(2) is appropriate. Ms Tyson acknowledged that s.52 gives the Court a number of discretions, however the onus is on Mr Levet to establish to the Court that it is not appropriate for a Sequestration Order to be made, whereas the submissions that have been made, delve into the Respondent’s other primary defence which is that there is a set-off or cross-claim against Jacobsen Venue Management, such that an order should not be made under s.52. Ms Tyson indicated that there has been a history of litigation between the parties and this is summarised in her affidavit sworn 18 May 2011.
The affidavit states:
Statutory Demand Proceedings
2. In May 2010, Kevin and Billie Jacobsen served various statutory demands against JVM [Jacobsen Venue Management] and various related companies – Time of My Life Pty Ltd (TOML), Dirty Dancing Services Pty Ltd (DDS) and Jacobsen Holdings Pty Ltd (JH) (Companies).
3. The Companies each commenced Supreme Court proceedings seeking to set aside statutory demands served on them:
(a) 2010/146016 by TOML against Kevin and Billie Jacobsen (as defendants);
(b) 2010/146023 by JVM against Kevin and Billie Jacobsen (as defendants);
(c) 2010/146027 by DDS against Kevin and Billie Jacobsen (as defendants);
(d) 2010/14602 by JH against Kevin and Billie Jacobsen (as defendants);
(e) 2010/152798 by TOML against Kevin and Billie Jacobsen (as defendants);
(f) 2010/225658 by TOML against Kevin Jacobsen (as defendant), in respect of a statutory demand served by Kevin Jacobsen alone against TOML.
4. On 19 July 2010, order were made in each proceeding, by consent, setting the statutory demands aside and ordering indemnity costs against Kevin and Billie Jacobsen (or Kevin alone in respect of proceeding 2010/225658). I acted fro the Plaintiffs in the above proceedings.
5. The costs orders were subsequently taxed, and further orders issued by the Supreme Court based on Costs Certificates (Costs Orders).
6. The debt the subject of this creditor’s petition arises from the Costs Orders made in these proceedings in favour of JVM.
Ms Tyson indicated that there was then a fourth set of proceedings by Offstage Support Association Inc, also seeking to wind up the same company, Time of My Life Pty Ltd. These proceedings were dismissed as an abuse of process by Edmonds J in the Federal Court. An appeal has been lodged but not yet heard. Offstage Support Association Inc. is an association in which two committee members are related to Billie Jacobsen. Consequently, all of the proceedings that have been instigated, with the exception of Offstage Support Association Inc. have been instigated by Kevin and Billie Jacobsen, in which costs orders have been made and not paid by them.
The nature of the offsetting claim to which Mr Levet is referring seems to be a complicated offsetting claim which has not yet been filed. No proceedings have been brought against Jacobsen Venue Management. Consequently, the offsetting claim, at its highest, does not meet the test that is required for the Court to form the view that an order ought not be made under s.52 and the evidence relied upon by Mr Levet has not been read at this stage. There is no evidence that has been filed to prove that Kevin and Billie Jacobsen are solvent and able to pay their debts. The only evidence is that there is approximately $2,000,000.00 dollars in debt referred to in a letter from their lawyer, Mr McCartney. However, there are other supporting creditors, ambient related companies, that are relying on judgment debts. Ms Tyson submits that the evidence presented by her side discloses, following the taxing of costs orders, there will be further debts needed to be paid by Kevin and Billie Jacobsen.
Ms Tyson contends that the matter of a tender of a debt should not be confused with a claim under s.52(2), or effectively, a setoff in which Kevin and Billie Jacobsen bear the onus of proving that there is a claim against Jacobsen Venue Management, with a sufficient probability of success.
Consideration
The Amended Creditor’s Petition filed in Court on 29 April 2011 by Jacobsen Venue Management Pty Ltd, ACN 050 069 577 (Applicant Creditor) and Kevin George Jacobsen (First Respondent Debtor) and Billie Lorraine Jacobsen (Second Respondent Debtor) in Part 1 – Petition sets out the following details:
The applicant creditor, Jacobsen Venue Management Pty Ltd ACN 050 069 577 of 98 Glebe Point Road, Glebe NSW 2037, applies to the Court for sequestration orders under section 43 of the Bankruptcy Act 1966 against the estate of Kevin George Jacobsen, Producer, and the estate of Billie Lorraine Jacobsen, Homemaker, both of 10 Rocher Avenue, Hunters Hill NSW 2110.
1. The respondent debtors owe the applicant creditor the amount of $5,643.89, being the amount owing by the respondent debtors pursuant to a judgment dated 9 December 2010 obtained in the Supreme Court of New South Wales proceedings 146023 of 2010 between Jacobsen Venue Management Pty Limited and the debtors, along with interest pursuant to s.101 of the Civil Procedure Act 2005 (NSW) and rule 36.7 of the Uniform Civil Procedure Rules 2005 for the period from 10 December 2010 to 29 April 2011 (inclusive). The judgment is based on costs certificates issued by the Supreme Court of New South Wales for costs assessed by a Supreme Court costs assessor, Mr Warwick Van Ede, in the abovementioned proceedings.
2. The applicant creditor does not hold security over the property of the respondent debtors.
3. At the time when the act of bankruptcy was committed, the respondent debtors:
(a) were ordinarily resident in Australia; and
(b) had a dwelling house or place of business in Australia.
4. The following act of bankruptcy was committed by the respondent debtors within 6 months before the presentation of this petition:
The respondent debtors failed to comply on or before 17 February 2011 with the requirements of a Bankruptcy Notice by Time of My Life Pty Limited ACN 107 898 966 numbered 5950 and dated 16 December 2010, served on both of them on 27 January 2011, or to satisfy the Court that they had a counter-claim, set-off or cross demand equal to or more than the sum claimed in the Bankruptcy Notice, being a counter-claim, set-off or cross demand that they could not have set up in the action in which the judgments referred to in the Bankruptcy Notice were obtained.
The affidavits of Ian McKerrell, licensed commercial agent, sworn 23 February 2011, attests to the service on 27 January 2011, of three Bankruptcy Notices on Billie Lorraine Jacobsen and four Bankruptcy Notices on Kevin George Jacobsen. The affidavit identifies in both instances, the service of Bankruptcy Notices for Time of My Life Pty Ltd ACN 107 898 966, No.5950 of 16 December 2010. The debt the subject of that Bankruptcy Notice was over $5,000.00 and was in respect of two sealed copies of judgment of the Supreme Court of New South Wales (2010/146016 and 2010/152798) both dated 9 December 2010. The Bankruptcy Notice gave an address for payment in Australia, requiring payment within 21 days after service.
On 24 February 2011, Time of My Life Pty Ltd filed a Creditor’s Petition commencing these proceedings relying upon the unsatisfied Bankruptcy Notice which expired on 17 February 2011. It is not in dispute that no application was made within 21 days of service of the Bankruptcy Notice 5950 of 2010 seeking to set-aside the notice. The affidavit of Daisy Theodoropoulous, solicitor, sworn 24 February 2011 states on oath that on that day she searched the records retained by the Federal Court of Australia and the Federal Magistrates Court of Australia which reveal that no application be made in relation to the Bankruptcy Notice No.5950 dated 16 December 2010.
On 20 April 2011, Registrar Ng granted leave to Time of My Life Pty Ltd to withdraw and ordered that any amended Creditor’s Petition of Jacobsen Venue Management Pty Ltd and supporting affidavits be filed and served by 2 May 2011. On 5 May 2011, Registrar Segal made orders including an order under s.49 of the Bankruptcy Act 1966 that Jacobsen Venue Management Pty Ltd be substituted as Petitioning Creditor. On the material before the Court, the matters required by s.43(1) of the Bankruptcy Act are satisfied.
As indicated above, there have been two attempts to tender payment of the debt which is the subject of the Creditor’s Petition to Jacobsen Venue Management Pty Ltd. The authorities are clear that a Petitioning Creditor is entitled to refuse payment and seek to proceed with a Petition. This position is supported by the authorities quoted by Ms Tyson at [14] – [18] above.
A convenient and succinct review of the authorities was addressed by his Honour Smith FM in his decision in Bank of Western Australia Ltd & Anor v Loiterton (No.2) (2006) 230 ALR 339 where his Honour states:
[57] The authorities which have guided me in this decision include the principal that Allsop J has recently referred to in Totev v Sfar (2006) 230 ALR 236 ; [2006] FCA 470:
[37] On proof of the matters in s 52(1) of the Act, the court will generally proceed to make an order for sequestration. It is for the debtor to persuade the court that the public interest in the dealing with the insolvent debtor and the rights of individual creditors are outweighed by other considerations. [Citation omitted]
[58] His Honour cites Cain v Whyte (1933) 48 CLR 639 at 645–6, where the Full Court approved dicta of Henchman J which included:
I rule then that I am fully entitled to examine the contention put forward by Mr Philp on behalf of the debtor that there is, in the present case, other sufficient cause sufficient to justify the dismissal of this petition. I approach that question with the full appreciation that, prima facie, on proof of the matters mentioned in s 56(2), the Court will proceed to make an order for sequestration, and that it is for the debtor to show some cause overriding the interest 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 cause is shown against the making of a sequestration order.
[59] In Australia & New Zealand Banking Group Ltd v Foyster [2000] FCA 400, Hely J considered the onus on a debtor to prove sufficiency of assets. His Honour said:
[17] The onus of proving sufficiency of assets lies on the respondent. It is not sufficient for the respondent simply to establish that he has assets which exceed his liabilities in value. It must also be established that the assets are available to be realised and that they are capable of ready realisation. …
[19] Under s 52(2)(a) the respondent must satisfy the court that he is “able to pay his … debts”, including liabilities: s 5(1). In my view, the subsection refers to a state of affairs which requires account to be taken of debts which will fall due in the reasonably immediate future pursuant to existing obligations: Bank of Australasia v Hall (1907) 4 CLR 1514 at 1527–1528 as well as debts which are presently due and payable. However, whether that is so or not, for the reasons explained by Katz J in International Alpaca Management Pty Ltd account needs to be taken, if not in assessing solvency, then in the exercise of the discretion whether or not to dismiss the petition, of liabilities which will become payable in the reasonably immediate future.
Ms Tyson relies on the affidavits of a number of supporting creditors who have filed appearances in these proceedings, namely, Dirty Dancing Services Pty Ltd and Jacobsen Holdings Pty Ltd, together with the affidavit of Ian McKerrell sworn 3 February 2011, which annexes a Bankruptcy Notice for Dirty Dancing services Pty Ltd supported by two judgments obtained in the Supreme Court of New South Wales Equity Division, proceedings no.2010/146016 and 2010/152798. Further, the affidavit of Grant McCartney sworn 19 April 2011, on behalf of Kevin and Billie Jacobsen, which annexes a letter (annexure A ) in which Mr McCartney refers to Kevin and Billie Jacobsen having personal creditors in excess of $2,000,000.00 and the possibility of Kevin and Billie Jacobsen appointing trustees under the provision of s.188 of the Bankruptcy Act.
The debtors do not dispute that I should be satisfied that the Creditor’s proof of the matters set out in s.52(1)(a)-(c) of the Bankruptcy Act, including, the Act of Bankruptcy alleged in the Petition and I accept that position. However, Kevin and Billie Jacobsen seek the Petition’s dismissal in reliance upon s.52(2) of the act which provides:
52(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.
Kevin and Billie Jacobsen bear the onus of proving that for some sufficient cause a Sequestration Order ought not be made. Submissions had been made that they rely upon an alleged cross-claim that has not been the subject of any Court proceedings and its nature and extent have not been placed before the Court. The Court has been referred to the decision in Noel Ling v Enrobook Pty Ltd [1997] FCA 226 per Davies, Wilcox and Branson JJ where their Honours state:
In Re Schmidt; Ex parte Anglewood Pty Ltd (1968) 13 FLR 111 at 115-16 Gibbs J said:
The second main contention of the debtor is that he is entitled to damages for the wrongful removal of his own property … The question immediately arises whether I should proceed to determine the existence and extent of the debtor's alleged claim. The position is different from that which arose in relation to his claim that the trucks were sold at an undervalue. In that regard any sum which the mortgagee was entitled to have brought to its credit as the amount which was realised, or ought to have been realised, on the sale of the mortgaged property must also be allowed to the credit of the debtor as surety, thus pro tanto reducing the amount of his indebtedness. It was therefore necessary to determine in this court the questions that arose in relation to that aspect of the matter. Where, however, the debtor claims to be entitled to unliquidated damages in tort against the petitioning creditor the position seems to me to be different. As a general rule this court is not an appropriate forum to decide such a claim and is limited to forming a view as to whether it appears that there is sufficient validity in the debtor's claims to justify a dismissal or adjournment of the petition … Considerable evidence directed to this issue has been given before me and it seems to me that I ought to consider this evidence for the purpose of deciding only whether it is probable that the debtor has against the petitioning creditor a claim which is likely to succeed. If I am satisfied that the debtor has a claim against the petitioning creditor equal to or exceeding the amount of the judgment debt, I should not make a sequestration order. If, however, it appears that the debtor has a claim which is less than the amount of the petitioning creditor's judgment debt, the proper course would seem to be to require the debtor, if he desires to avoid a sequestration order, to pay the difference between the amount of the judgment debt and the amount which it seems probable to me that he will recover in the proceedings against the petitioning creditor. In many cases it would be more convenient, assuming that the debtor showed that he had a real claim to litigate, to adjourn the proceedings to enable his claim to be tried in the ordinary courts, but that course was not taken in the present case, partly because the existence of any valid claim was vigorously denied by the petitioning creditor and partly because the proceedings in the Supreme Court have been somewhat dilatory. (Emphasis added).
The above approach was adopted in this court by Olney J in Re James; Ex parte Carter Holt Harvey Roofing (Australia) Pty Ltd (No 2) and applied by the Full Court of this court in Ling v Commonwealth (1996) 139 ALR 159.
The above authorities do not, in our view, support the appellant's contention that the courts recognise a public interest in allowing a debtor to prosecute litigation commenced by the debtor. The public interest recognised by such authorities is that which, in broad terms, is reflected also in s 40(1)(g) of the Act; that is, that a sequestration order ought only to be made on the basis of an indebtedness which is not counterbalanced by a claim by the debtor against the petitioning creditor. Such authorities provide no comfort to a debtor who asserts a claim, not against his or her creditor, but against a third party.
In Perpetual Trustee Co v Baker [2011] FMCA 264 per Barnes FM, her Honour refers to the above authorities with approval, specifically at [23] – [25]. I am not satisfied that the details of any alleged cross-claim has been established to the extent that the Court could accept that Kevin and Billie Jacobsen have a claim to justify the dismissal of this Petition. Mr Levet advanced a further argument that as the issues that have been litigated do not involve third party creditors because it is wholly contained in the Jacobsen Group of companies which, in effect, has two controlling minds, being Kevin and Colin Jacobsen, and all the companies within that group were in effect mere instruments of a partnership between them. In support of this contention, Mr Levet relied on the authority in Walker v Wimborne (supra). I note the observations of the learned authors in Insolvency: Personal and Corporate Law and Practice (4th Ed) by Andrew Keay and Michael Murray at page 355 where they state:
The traditional view of directors’ duties is, as has been discussed earlier in this chapter, that they are owed to the company – so that directors are under a fiduciary obligation to exercise their powers bona fide in the interests of the company as a whole. However, since 1976 a substantial body of case law has developed which states that in certain circumstances directors, in discharging their duties to the company, must take into account the interests of its creditors, that is, in discharging their duties to their companies directors must consider the interests of their companies’ creditors; directors owe a fiduciary obligation in this regard (Lyford v Commonwealth Bank of Australia (1995) 130 ALR 267, 283). In fact, some decisions even suggest a different view; that the duty is one owed directly to the creditors; that a director owes an independent duty to credtiors of his or her company, but obiter in a recent High Court case has clearly rejected such a view (Spies v R (2000) 35ACSR 500). If a duty was owed, it has been said that it could encourage creditors to place pressure on directors who might manipulate payments by their companies to ensure that they are not personally liable; this would be likely to cause the collapse of the company and would undermine the pari passu principle applicable in respect of insolvent companies, leaving the general body of creditors disadvantaged.
In the circumstances, I am not satisfied that this argument can be sustained as the initial formation of the Jacobsen Group may have been that of a partnership however, since many years of trading activities have been undertaken using the various corporate structures, there will exist a number of creditors not yet identified who could be potentially seriously disadvantaged if this approach was taken.
Consequently, the oral application made by Mr Levet on 17 June 2011 to dismiss the Amended Petition, cannot be sustained.
I certify that the preceding forty-one (41) paragraphs are a true copy of the reasons for judgment of Lloyd-Jones FM
Date: 28 June 2011
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