Krpina v Arrow Sun Australia Pty Ltd

[2014] FCCA 1007

FEDERAL CIRCUIT COURT OF AUSTRALIA

KRPINA v ARROW SUN AUSTRALIA PTY LTD & ORS [2014] FCCA 1007

Catchwords:
BANKRUPTCY – Application to set aside Sequestration Order – alleged defects in Bankruptcy Notice and Creditors Petition – issue of solvency – Sequestration Order affirmed.

Legislation:

Bankruptcy Act 1966 (Cth), ss.44, 52, 306

Federal Circuit Court Act 1999 (Cth), ss.103, 104
Federal Circuit Court (Bankruptcy) Rules 2006 (Cth)
Magistrates Court Act 1989 (Vic), s.100
Penalty Interest Rates Act 1983 (Vic), s.2
Supreme Court Act 1986 (Vic) s.58

Adams v Lambert (2006) 228 CLR 409
Australian Steel Company (Operations) Pty Ltd v Lewis (2000) 109 FCR 33
Martin v Commonwealth Bank of Australia [2001] FCA 87
Emerson and Anor v Wreckair Pty Ltd (1992) 33 FCR 581
Reaper v Baycorp Collections PDL (Australia) Pty Ltd [2014] FCA 13

Applicant: MIRO KRPINA

First Respondent:

ARROW SUN AUSTRALIA PTY LTD

(ACN 136 865 408)

Second Respondent: KENNETH STEWART SELLERS

Third Respondent: ALICE FAYE RUHE

File Number: MLG 952 of 2013

Judgment of: Judge Whelan

Hearing date: 5 March 2014

Date of Last Submission: 5 March 2014

Delivered at: Melbourne

Delivered on: 20 May 2014

REPRESENTATION

Counsel for the Applicant: Applicant in person

Counsel for the First Respondent: Mr P Fary

Solicitors for the First Respondent: Macpherson & Kelley Lawyers

Counsel for the Second Respondent: No appearance

Counsel for the Third Respondent: No appearance

ORDERS

1. The Application for Review filed on 26 August 2013 be dismissed.

2. The Sequestration Order made by Registrar Caporale on 6 August 2013 be affirmed.

FEDERAL CIRCUIT COURT
OF AUSTRALIA
AT MELBOURNE

MLG 952 of 2013

MIRO KRPINA

Applicant

And

ARROW SUN AUSTRALIA PTY LTD (ACN 136 865 408)

First Respondent

KENNETH STEWART SELLERS

Second Respondent

ALICE FAYE RUHE

Third Respondent

REASONS FOR JUDGMENT

1. On 26 August 2013, MR MIRO KRPINA (“the Applicant Debtor”) made an application for review of the orders of Registrar Caporale (“the Registrar”) made 6 August 2013, in which the Registrar made a Sequestration Order against his estate. The Applicant Debtor sought that the Sequestration Order be set aside and that the application for a Sequestration Order to be made, be “refused”.[1]

   [1] Application for Review filed 26 August 2013 at p.2.

2. The Sequestration Order was made by the Registrar on the basis of a Creditor’s Petition[2] which claimed that the Applicant Debtor owed the amount of $5,789.59 to the Respondent, ARROW SUN AUSTRALIA PTY LTD (“the First Respondent”). That amount comprised the judgment obtained against the Applicant Debtor in the

   
   

   Magistrates Court of Victoria (“the Magistrates Court”), together with interest after judgment in the sum of $140.98.[3]

   [2] Creditor’s Petition filed 1 July 2013.

   [3] Creditor’s Petition filed 1 July 2013 at p.2.

3. The original default judgment was made by the Magistrates Court at Melbourne on 6 August 2012 for a total sum of $5,648.61. On 7 November 2012, the Respondent issued a Bankruptcy Notice against the Applicant Debtor which was served on him on

   
   

   7 January 2013.[4]

   [4] Affidavit of Personal Service of Reginald Johnstone filed 1 July 2013 at Exhibit A.

4. On 29 January 2013, the Applicant Debtor filed a re-hearing application at the Magistrates Court seeking to set aside the judgment. This was listed for hearing on 19 February 2013. On the same day, the Applicant Debtor filed an application in this Court to set aside the Bankruptcy Notice, relying on the re-hearing application in the Magistrates Court. The application in this Court was listed for 21 February 2013.

5. The Applicant Debtor did not appear at the hearing of the re-hearing application in the Magistrates Court and accordingly his application was struck out. The First Respondent issued a Creditors Petition which was listed for hearing on 6 August 2013 and served on 9 July 2013.[5] The Applicant Debtor failed to appear at the hearing and the Registrar proceeded to make the Sequestration Order.

   [5] Affidavit of Service of Reginald Johnstone filed 6 August 2013.

6. On 19 August 2013, the Trustees forwarded a report to the creditors setting out their preliminary investigations. A further report was forwarded on 3 October 2013. On 26 August 2013, the Applicant Debtor served the Trustees with the Application to Review the Sequestration Order.

7. The Trustees Report of 3 October 2013[6] estimated the Applicant Debtor’s total known assets at $218,830.00. Of this:

   ·$200,000.00 was the value of real property; and

   ·$18,830.00 was the value of business assets.

   [6] Affidavit of Thiam-Jin Chu filed 10 October 2013 at Exhibit “TJC-8”.

8. The Applicant Debtor valued his assets, in his Statement of Affairs, at $343,500.00. This was comprised of:

   ·Real property valued at $220,000.00;

   ·Business assets of $117,500.00;

   ·Tools of trade of $3,000.00; and

   ·A motor vehicle also valued at $3,000.00.[7]

   [7] Affidavit of Thiam-Jin Chu filed 10 October 2013 at Exhibit “TJC-8”.

9. The Trustees found the Applicant Debtor’s liabilities to be $246,355.00 with secured creditors of $131,999.00 and unsecured creditors of $114,356.00. The Applicant Debtor, in his Statement of Affairs, claims secured creditors of $125,994.00 and unsecured creditors of $88,422.00.[8]

   [8] Ibid.

10. The matter first came before this Court, as currently constituted, on

    
    

    10 October 2013, at which time it was set down for hearing on

    
    

    22 November 2013. The Applicant Debtor was ordered to file and serve an amended affidavit by 24 October 2013 and to serve the Form 12 Notice to Creditors (“the Form 12 Notices”) on each of the Applicant Debtor’s known creditors by that date.[9]

    [9] Orders of Judge Whelan dated 10 October 2013.

11. The First, Second and Third Respondents (the Petitioning Creditor and the Trustees) (collectively “the Respondents”) were ordered to lodge any further affidavit material by 14 November 2013 and orders were made with respect to the payment of rent on the Applicant Debtor’s business premises.[10]

    [10] Ibid.

12. On 24 October 2013 the Applicant Debtor filed a further affidavit. On 29 October 2013, the solicitor for the Respondents filed a further affidavit and an Application in a Case and, on that date, Order 4 of the Orders made on 10 October 2013 was revoked.[11]

    [11] Orders of Judge Whelan dated 29 October 2013.

13. On 19 November 2013, the matter came back before the Court. The Applicant Debtor produced documents which purported to be affidavits of service with respect to the service of the Form 12 Notices, but which did not comply with the requirements for such an affidavit. The Applicant Debtor also sought to produce information with respect to his solvency in an unsworn and uncertified form. The matter was adjourned until 12 December 2013 to enable the parties to produce a sworn valuation of the business assets and for the Applicant Debtor to provide proof of service of the Form 12 Notices.

14. On 12 December 2013, the matter was further adjourned for Final Hearing on 5 March 2014. The parties had been unable to reach agreement on who should provide a valuation for the business assets. The Applicant Debtor was warned of his obligation to provide proof of solvency and directions were given for trial to be held on

    
    

    5 March 2014.

15. The affidavit material produced by the Applicant Debtor provides little material with respect to his solvency. Much of the affidavit material produced is in the form of submission, rather than statement of fact. From the affidavit material, it would appear that the Applicant Debtor contends that the Bankruptcy Notice was invalid because the amounts specified in the order of the Magistrates Court are incorrect.

16. In his second affidavit,[12] the Applicant Debtor raises an additional issue with respect to the form attached to the Bankruptcy Notice which he claims does not show the basis for the calculation of interest. Further, he contends the Bankruptcy Notice was incorrectly addressed. The Applicant Debtor also contends that there are defects in the Creditors Petition, essentially repeating his claims with respect to the defects in the Bankruptcy Notice. He also claims that he is, and was at the relevant times, solvent.

    [12] Affidavit of Miro Krpina filed 8 October 2013.

The evidence of the Applicant

1. The affidavit evidence of the Applicant Debtor contained numerous assertions which were not supported by any documentary or other probative evidence. He contended that there was a miscalculation in the amount of interest awarded as part of the default judgment. He contended that the interest should have been $104.35 and not $116.96.[13] He further contended that the calculation of interest

   
   

   post-judgment was therefore also incorrect.

   [13] Affidavit of Miro Krpina filed 8 October 2013, page 3 at para.11.

2. The Applicant Debtor further contended that the Bankruptcy Notice gave an incorrect address and that the affidavit verifying paragraph 4 of the Creditors Petition had spelt his name incorrectly. The Applicant Debtor claimed that there was no contract between himself and the

   
   

   First Respondent for any interest component on the debt and that the date of payment was uncertain.

3. In his first affidavit, the Applicant Debtor stated that he was solvent and that he had an amount of $13,001.45 in his cheque account.[14] This was the only statement with respect to solvency in the first affidavit.

   [14] Affidavit of Miro Krpina filed 26 August 2013, p.6 at para.15.

4. In his second affidavit, the Applicant Debtor referred to certain bills that needed immediate payment which he said totalled $15,363.11.[15] There were claims made about the terms of trade with respect to those debts but no evidence of such was produced. The Applicant Debtor also stated that he had an overdraft balance of $20,000.00.[16] The affidavit set out the Applicant Debtor’s evidence with respect to money he expected to receive and the amount of money generated by the business. There is, however, no documentary evidence to support these statements. The Applicant Debtor also stated that the First Respondent should have taken the matter of the debt to the Victorian Civil and Administrative Tribunal (“VCAT”) where the legal costs would have been $450.00.[17]

   [15] Affidavit of Miro Krpina filed 8 October 2013, p.8 at para.20.

   [16] Ibid.

   [17] Ibid, p.9 at para.27.

5. In his fourth affidavit, the Applicant Debtor stated that the overdraft available to him was $19,944.05.[18] He produced a list of payments, but without any supporting evidence as to what were the terms of trade in relation to any of the amounts claimed. He also produced some evidence of payments made with respect to work in progress. Much of what the Applicant Debtor stated was speculative. He claimed stock of $150,000.00 and goodwill in the business of $70,000.00.[19] He later claimed he took a stock-take of stock on

   
   

   5 November 2013 and valued the stock at $137,152.00.[20] There was no probative evidence to support this. He referred to arrangements which he had made with certain creditors to pay his debts but again, there was no evidence to support the existence of these arrangements.

   [18] Affidavit of Miro Krpina filed 11 December 2013, p.3 at para.14.

   [19] Ibid at para.30.

   [20] Affidavit of Miro Krpina filed 11 December 2013 at para.35.

6. The Applicant Debtor also produced a single page opinion of the market value of the property at Norton Drive, Melton (“the Norton Drive property”). It stated that, with a “solidly prepared advertising campaign”, the property could achieve a figure of approximately $235,000.00. The letter stated that this appraisal was “not prepared by a registered valuer and cannot be relied upon”.[21]

   [21] Ibid at Annexure MK14.

7. In cross-examination, the Applicant Debtor agreed that:

   ·He owed money to the First Respondent in respect of three invoices. He disputed that the money under those invoices was due seven days after the end of the month in which the invoices were rendered. He stated, “there was no agreement between the two parties as to the payment date”;[22]

   ·The invoice contained the words ‘7 days EOM’ which meant ‘end of month’ and that the invoices had not been paid;

   ·He stated in his affidavit material that “certain adverse vagaries in [the] business which made it difficult to pay those three invoices”;[23]

   ·He had written to the First Respondent on 12 June 2012, stating: “I do understand in the last two years I’ve been at times unable to keep 30 day trading terms of suppliers and that this may have been vexation [sic] to you”;[24]

   ·He had referred to an “ongoing legal battle . . . which had caused [him] to incur great expenditure” and that he was “unable to devote [his] one hundred per cent effort to [his] business . . .  sales dropped with a resulting drop in revenue”;[25]

   ·He had an issue with two clients who had gone into liquidation and that he had told the First Respondent that he expected to pay the balance within eight to 10 weeks; and

   ·He had not paid the balance within that time.

   [22] Transcript of proceedings, 5 March 2014, p.5 at lines 29-30.

   [23] Ibid, p.6 at lines 25-26.

   [24] Ibid, p.7 at lines 16-17, 21.

   [25] Ibid at lines 23-24 and 28-29.

8. The Applicant Debtor stated that his business, GRAND CARPETS, (“Grand Carpets”) had been “extinguished”.[26] He agreed that he had stated that he had incurred substantial losses as a result of the Sequestration Order. He stated that he continued to sell carpets for a company called CONCORD FLOORCOVERINGS PROPRIETARY LIMITED (“Concord Pty Ltd”), which was owned by his son,

   
   

   MR VLADIMIR KRPINA. With respect to his income, he stated that he took what he needed from the business and that this was about

   
   “6 -$700 a week”

   .[27]

   [26] Transcript of proceedings, 5 March 2014, p.8 at line 39.

   [27] Ibid, p.10 at line 19.

9. The Applicant Debtor agreed that he owned the shop at the

   
   

   Norton Drive property and that he had leased a warehouse in Collins Road. It was put to him that the Trustee had since disclaimed the lease. He responded that he did not know what the position was at law. He stated that Concord Pty Ltd had assumed the responsibility and the liability for paying the rent. He stated that the lessor had owed him an amount of $8,500.00 which he had not paid. The Trustee had handed over the property and the title to the goods to the lessor. He agreed that the business, apart from its hard assets, had no value.

10. The Applicant Debtor agreed that, apart from the Norton Drive property, he had some motor vehicles that were worth approximately $5,000.00 and tools of trade of about $3,000.00. The Applicant Debtor also agreed that he had been involved in legal actions with both CAPITAL TRANSPORT (“Capital Transport”) and OWNERS CORPORATION (“Owners Corporation”).

11. With respect to the matter concerning Owners Corporation, the Applicant Debtor agreed that it concerned a claim that he owed Owners Corporation money with respect to insurance on the building at the Norton Drive property. He agreed that he disputed the amount and that the matter had been taken to VCAT. He stated that he had lodged a counter-claim.

12. With respect to the matter concerning Capital Transport, the Applicant Debtor stated that the matter had not been resolved, but that he had not been able to reopen the case because of time constraints and trying to establish the new business. He agreed that Capital Transport had a judgment against him, but claimed that he did not owe them money.

13. The Applicant Debtor agreed that:

    ·

    According to his Statement of Affairs, his income in the

    
    

    12 months prior to 10 September 2013 from Grand Carpets, was

    
    

    -$73,000.00;

    ·He owed the WESTPAC BANK (“Westpac”) $125,000.00;

    ·He owed CITIBANK $31,000.00; and

    ·The debt to Westpac was secured against the Norton Drive property.

14. The Applicant Debtor stated that he had a Westpac overdraft facility which at one point had a limit of $145,000.00. He agreed that he had not produced the terms of the Westpac overdraft facility. He agreed that once he became bankrupt, Westpac no longer allowed him to operate the overdraft facility.

15. The Applicant Debtor agreed that he owed $6,000.00 to ACCESS INTERNATIONAL DISTRIBUTORS and that that amount was still outstanding. He agreed that he owed an amount of $4,367.11 to CLASSIC FLOORING and that that was still outstanding. With respect to the debt of $7,952.00 to BIBBY FINANCE (“Bibby”), the Applicant Debtor claimed that that debt was no longer in place. He stated it was a debt he had incurred with REGIONAL FOAM and that the owner had become bankrupt. He stated that he did not have a release from that debt by Bibby but that because of the insolvency of the creditor, “nobody has become entitled to that debt”.[28] He disagreed that the Trustee in bankruptcy would be entitled to the money.

    [28] Transcript of proceedings, 5 March 2014, p.18 at line 47.

16. The Applicant Debtor agreed that he had stated that he owed an amount to the ANZ BANK (“ANZ”) with respect to credit card debts in his Statement of Affairs. He said that was an amount of $9,500.00. It was put to him that the Trustee had been advised that the debt was $10,535.17.[29] He was unable to dispute this. With respect to the Westpac credit card, he stated that there was a debt of $13,953.00. He disputed the figure which the Trustee said he was advised that the debt amounted to, which was $27,906.72.[30] He stated that Westpac had been deducting out of the principal the interest payments up to date. He agreed that that meant that the overall debt continued to go up because the interest was simply being added. He was unable to state whether his contract with Westpac required him to immediately pay the amount owing to Westpac under the credit card agreement.

    [29] Ibid, p.20 at line 10.

    [30] Ibid at line 22.

17. With respect to ADVANTAGE FLOORING, the Applicant Debtor agreed that the debt recorded in the Statement of Affairs was some $5,850.00. He stated that this amount was no longer owing, as it had been paid off by Concord Pty Ltd. He denied that that meant that he now owed the money to Concord Pty Ltd. He agreed that he owed an amount of $7,942.00 to TANYA MYKYTA LAWYERS. He disputed the amounts that was claimed to be owing to the AUSTRALIAN TAXATION OFFICE which the Trustee said was $4,118.80. He agreed that he continued to owe an amount of $31,925.00 to CITIGROUP FINANCE.

18. With respect to the stock of Grand Carpets, the Applicant Debtor stated that this was now the property of Concord Pty Ltd.

The First Respondent’s evidence

1. The First Respondent contended, on the basis of the affidavit evidence of MR THIAM-JIN CHU (“Mr Chu”), that:

   ·It had satisfied the requirements for proof of the matters stated in the petition;

   ·The petition had been served; and

   ·The debt relied upon by the First Respondent was still owing.

2. Mr Chu stated that, on 15 May 2012, the First Respondent commenced proceedings in the Magistrates Court claiming the sum of $4,840.13, with respect to monies due under the invoices issued to the

   
   

   Applicant Debtor by the First Respondent. On 12 June 2012, the

   
   

   First Respondent’s solicitors received a facsimile from the Applicant Debtor, which proposed terms of settlement.[31] On 16 July 2012, the

   
   

   First Respondent’s solicitors forward a facsimile to the

   
   

   Applicant Debtor enclosing terms of settlement which proposed settlement on the basis of payments of the amount plus interest and costs. The letter stated that the Applicant Debtor should return the signed terms and minutes to the solicitor’s office by 20 July 2012.[32] The Applicant Debtor failed to return the signed terms of settlement to the First Respondent’s office and, therefore, on 6 August 2012, the

   
   

   First Respondent solicitors entered default judgment against him in the sum of $5,648.61.[33] On 7 August 2012, the First Respondent’s solicitors received a copy of the signed terms of settlement by facsimile. The First Respondent’s solicitors replied, indicating that judgment had been entered and that unless payment of the judgment debt was made, enforcement proceedings would be instituted.[34]

   [31] Affidavit of Thiam-Jin Chu filed 10 October 2013 at Exhibit “TJC-1”.

   [32] Ibid at Exhibit “TJC-2”.

   [33] Ibid at Exhibit “TJC-3”.

   [34] Ibid at Exhibit “TJC-4”.

1. Mr Chu also gave evidence about the attempts made by the First Respondent to obtain agreement with the Applicant Debtor to the appointment of a qualified expert to provide valuations on the stock of the business of Grand Carpets. Despite their attempts to obtain the agreement of the Applicant Debtor, they were unable to do so.

2. Mr Chu gave evidence that the Trustees had instructed Lockwood & Company Pty Ltd to inspect the Applicant Debtor’s business assets and to prepare a report as to value of these assets on the following basis:

   ·Market value for existing use; and

   ·Realization at auction.

3. The Trustees had received the valuation report from Lockwood which valued the business assets at $41,140.00 based on market value for existing use and $18,830.00 based on realization at auction.[35]

   [35] Affidavit of Thiam-Jin Chu filed 12 December 2013 at Exhibit “TJC-5”.

4. The Trustees had also invited three real estate agents to conduct kerbside appraisals of the Norton Drive property. The three valuations received valued the property at between:

   ·$165,000 and $180,000;

   ·$210,000 and $230,000; and

   ·$200,000.[36]

   [36] Affidavit of Thiam-Jin Chu filed 12 December 2013 at Exhibit “TJC-6”.

5. Mr Chu was cross-examined by the Applicant Debtor about the valuer’s report. He agreed that the Applicant Debtor had told him that his assets were worth more than what was listed in the Trustee’s report.[37]

   [37] Transcript of proceedings, 5 March 2014, p.34 at lines 22-26.

The First Respondent’s submissions

1. The First Respondent referred to the relevant provisions of the Federal Circuit Court Act 1999 (Cth) (“the FCC Act”) and Federal Circuit Court (Bankruptcy) Rules 2006 (Cth) (“the Rules”). The

   
   

   First Respondent submitted that a review of a decision by a Registrar was by way of a hearing de novo, therefore the role of the Court was to exercise its own discretion as to whether or not a Sequestration Order should be made. The First Respondent submits that Arrow Sun Australia Pty Ltd has satisfied the requirements of s.52 of the Bankruptcy Act 1966 (Cth) (“the Act’) and that is that no notice stating grounds of opposition to the petition had been filed.

2. The First Respondent submitted that it appeared from the

   
   

   Applicant Debtor’s material that he alleged four matters with respect to his application for review. The first of these was alleged to be defects in the Bankruptcy Notice and the judgment issued by the

   
   

   Magistrates Court.

3. The First Respondent submits that an act of bankruptcy is committed irrespective of whether it can be shown that the underlying judgment is defective. In this case, there appeared to be no dispute that there was an underlying debt, according to the invoices of $4,371.52. The claim made in the proceedings in the Magistrates Court for a sum of $4,840.00 includes the amount of $468.61 in interest calculated from 8 May 2012 to the date of filing the complaint. That claim was made pursuant to s.58 of the Supreme Court Act 1986 (Vic) (“the SC Act”). While the Applicant Debtor claims that there was no contract between the First Respondent and himself for the interest component, the

   
   

   First Respondent’s claim is plainly a claim for a debt; a debt which is admitted by the Applicant Debtor. The First Respondent further submits that, given the terms of the contract, that is payment seven days from the end of the month, interest in fact was payable from a date earlier than 8 May 2012.

4. The First Respondent further submits that, even leaving aside the interest claim that was made under s.58 of the SC Act and taking the figure, which the Applicant Debtor says should have been the interest component of $104.35 rather than $116.96, there is a debt that exceeds the statutory minimum of $5,000.00. This is comprised of:

   ·Principal of $4,371.32;

   ·Interest of $104.35; and

   ·Costs of $691.52.

5. The Applicant Debtor contends that costs should have been $450.00 because the matter should have been dealt with in VCAT. The

   
   

   First Respondent says that it was their right to the issue in the Magistrates Court and that there is no reason why interest pursuant to s.58 of the SC Act was not payable. On that basis, the debt is well over the figure of $5,000.00.

6. The First Respondent submits that:

   While the court has power to go behind the judgment, it cannot do so if the only purpose is to show that the amount should be reduced, as opposed to showing that there is no debt owing at all. However, it may be relevant to show that the judgment should be reduced to an amount below the minimum amount that supports a petition.

   . . .

   Here there is no question that the underlying judgment debt is for an amount in excess of $5,000 (even putting to one side the s 58 interest).[38]

   [38] Respondents’ Submissions filed 5 March 2014, p.7 at paras.31 and 33.

7. The First Respondent was entitled to claim statutory interest on the entire judgment debt, including any award of interest: “Here the applicant only seeks to go behind the judgment so as to dispute part of the claim for interest”.[39]

   [39] Ibid at para.34.

8. In this case, the Applicant Debtor made an application to set aside the judgment and did not proceed with it. He made an application to set aside the Bankruptcy Notice and did not proceed with it. There are good discretionary reasons why the Court would not now go behind the judgment.

9. The Applicant Debtor also asserts that the wrong provision has been inserted in the schedule to the Bankruptcy Notice. The Notice states that the provision under which the post-judgment interest is claimed is s.100(7) of the Magistrates Court Act 1989 (Vic) (“the MC Act”). The First Respondent submits that this is the correct provision. In any event, since Adams v Lambert (2006) 228 CLR 409 (“Adams”), a defect such as that would not render the notice invalid but was a formal defect or irregularity which could be cured by s.306 of the Act.

10. The same issues which are relied on by the Applicant Debtor to challenge the Bankruptcy Notice are also relied upon in relation to the

    
    

    Creditor’s Petition. The only additional matter raised is the incorrect heading in the affidavit verifying paragraph 4 of the Creditors Petition. The First Respondent submits that nothing turns on that error.

11. With respect to the issue of solvency, the First Respondent referred the Court to the recent judgment of Pagone J in Reaper v Baycorp Collections PDL (Australia) Pty Ltd [2014] FCA 13 (“Reaper”). In this case, there are essentially two assets relied upon, being the stock and the shop. As at the date of the Creditor’s Petition there had been no steps to realise either asset. As at today, one of the assets is no longer in the hands of either the Applicant Debtor or the Trustees. For that reason, the First Respondent submits that the stock should not be regarded as an asset of the Applicant Debtor for the purposes of determining solvency. In any event, there is no probative evidence of what the value of the stock would be based on sale in a relatively short period of time.

12. With respect to the Applicant Debtor’s income, the evidence is that he currently has minimal income. The business is no longer being conducted by him.  If the Sequestration Order were to be set aside, any assessment of what he might earn in the future would be pure speculation. Post-bankruptcy, whatever funds were available in the overdraft are no longer available and that is accepted by the

    
    

    Applicant Debtor. Much of the evidence about what money could have been generated by the business is historical.

13. There is a dispute about the value of the real property and the business assets. There is no good probative evidence about what the business assets were worth. The Court may have regard to the fact that the Trustee disclaimed the business assets. The business assets appear to have been acquired by the new entity for either nothing or as forgiveness for a debt of $8,500.00. This is in stark contrast to the claim that the business assets were worth over $100,000.00. The Applicant Debtor admits in his Statement of Affairs to secured creditors of $125,000.00 and unsecured creditors of $88,000.00. Given the capitalisation of the debt to Westpac, that debt is likely to have risen. In addition, the Applicant Debtor has not admitted to any debts which he disputed. The onus is on the Applicant Debtor to prove his solvency. The Court should not have any confidence that the true position has been established.

The Applicant Debtor’s submissions

1. The Applicant Debtor referred the Court to the decision of the Federal Court in Australian Steel Company (Operations) Pty Ltd v Lewis (2000) 109 FCR 33 (“Australian Steel”). He submitted that that case was authority for the propositions that:

   ·The stated amount owed should be correct;

   ·The interest calculation should be correct; and

   ·Everything should be correct in a Creditor’s Petition because what the petitioner is seeking to do is to subject the bankrupt to penal provisions which are very serious.

2. The Applicant Debtor submits that what the Respondent is seeking to do is to have the Court enforce an extra $500.00 with respect to his indebtedness. It is necessary to go behind the default judgment in order to establish this. The Applicant Debtor stated that there was no basis upon which the First Respondent could apply s.58 of the SC Act with respect to interest on the debt.

3. He further submitted that the claim for $116.00 in post-judgment interest was also not applicable. If, on this basis, the figures in the Bankruptcy Notice are incorrect, then that also means that the figures in the Creditor’s Petition are incorrect. The Applicant Debtor submits that the First Respondent has not at any point in time, established whether he is solvent or not.

4. The Applicant Debtor submitted that he was hit by a tsunami of legal and business problems:

   ·Two builders went broke from which he lost a combined amount of $43,000.00;

   ·He lost additional amounts from other debts; and

   ·He had a problem with the landlord who locked his doors and he had to go to VCAT to recover possession of the property.

5. The Applicant Debtor explained that this was a freak occurrence. He stated that he had a big job in the pipeline for which he had to buy materials and pay the carpet-layer. He made further submissions in relation to what he was able to earn and what income he was capable of generating. He stated that ANZ and Westpac were both being paid on time. He stated that the business, prior to it being taken over by the Trustees, was basically sound.

6. The Applicant Debtor made other submissions which were essentially an attempt to give oral evidence from the bar table.

Conclusions

1. This is an application to set aside the Sequestration Order made by Registrar Caporale on 6 August 2013 and to dismiss the application for a Sequestration Order made by the Petitioning Creditor. The Registrar in making the Sequestration Order was exercising powers delegated to him under s.103 of the FCCA Act.

2. Under the provision of s.104(2) of the FCCA Act, a party to a proceeding in which the Registrar has exercised a delegation under s.103 may apply to the Court for a review of that decision. A review of a decision by a Registrar is a hearing de novo. It is, therefore, for the Court to determine if a Sequestration Order ought to be made. In determining that issue, the Court may take into account the material before the Registrar, as well as any other evidence presented.

3. The Court needs to determine that the petitioning creditor has met the requirements of s.52 of the Act.[40] In this case, it is not challenged that the petition was served or that the debt, on which the petitioning creditor relies, is still owing. The Applicant Debtor essentially challenges the matters stated in the petition. In doing so, he seeks to go behind the default judgment entered in the Magistrates Court on

   
   

   6 August 2012, and challenge the amount claimed by the

   
   

   First Respondent with respect to the interest up to filing of the complaint of $468.61. The Applicant Debtor referred to this as the

   
   

   First Respondent “robbed me of $500 which is really the centre of this dispute”.[41] The Applicant Debtor further states that, because of this, the interest ordered by the Court of $116.96 was calculated on the amount of $4,840.35 instead of $4,371.32 and should have been $104.35. 

   [40] Martin v Commonwealth Bank of Australia [2001] FCA 87.

   [41] Transcript of proceedings, 5 March 2014, p.42 at line 10.

4. The Applicant Debtor also challenges the costs of $691.52 on the basis that the Respondent should have made the claim in VCAT and not the Magistrates Court, in which case the costs would have been $450.00. If all of the Applicant Debtor’s submissions were accepted, this would bring the debt down to a total of $4,925.67 thus bringing it under the threshold for the application of s.44(1) of the Act.

5. This issue can be readily disposed of without considering the validity of the amount of interest calculated on the basis of s.58(1) of the

   
   SC Act

   with respect to the interest up to filing of the complaint. If I were to accept the Applicant Debtor’s contention that the debt should only have been the $4,371.32, which he acknowledges he owes and the interest awarded by the Magistrates Court therefore $104.35, the issue of costs would still be against him. The First Respondent was under no obligation to institute the proceedings in VCAT rather than the Magistrates Court and the costs awarded by the Court are not challenged on any other basis. On my calculations that would bring the debt to at least $5,167.19.

6. The Court has a discretion to go behind a judgment in proceedings such as these. However, it needs to be considered that the appropriate forum for review of a judgment is the court in which the judgment was issued. The default judgment was made on 6 August 2012. The

   
   

   Applicant Debtor did not seek a re-hearing to set aside that judgment until 29 January 2013, some 22 days after the Bankruptcy Notice was served on him. He then failed to appear at the hearing of his application and his application was struck out with costs. 

7. The Applicant Debtor filed an application on 29 January 2013 to set aside the Bankruptcy Notice, on the basis of the re-hearing application but did not proceed with that application. When the

   
   

   First Respondent issued a Creditor’s Petition, he failed to appear on the listed date.

8. The Applicant Debtor now seeks to go behind the judgment of the Magistrates Court only to dispute part of the claim for interest. In Emerson and Anor v Wreckair Pty Ltd (1992)

   
   

   33 FCR 581, the Full Court of the Federal Court considered the exercise of the Court’s power to go behind a judgment in similar circumstances. The Court said:

   The Court should not go behind a judgment where the grounds upon which the judgment is challenged are such that, if accepted, they would only support a finding that the amount of the debt be reduced and would not support a finding that there was in truth no debt at all.[42]

   [42] (1992) 33 FCR 581 at 589.

9. I am therefore not satisfied that there is a basis for the Court to go behind the judgment of the Magistrates Court in this case.

10. Further, as the Court noted in that matter, an act of bankruptcy is committed irrespective of whether it can be shown that the underlying judgment is defective. In this case, on the material before me, I am in any event not satisfied that the judgment was defective.

11. The Applicant Debtor further contends that the provision relied upon by the First Respondent with respect to the interest claimed has not been correctly stated in the Bankruptcy Notice. The schedule with respect to post-judgment interest cites s.100(7) of the MC Act and the rate fixed under s.2 of the Penalty Interest Rates Act 1983 (Vic) as the basis for calculating an amount of interest of $140.98. The

    
    

    Applicant Debtor claims that the relevant provision in the circumstances of this case was s.60 of the SC Act. On the basis of Australian Steel, he therefore contends that the Bankruptcy Notice is invalid.

12. The First Respondent disputes that the First Respondent has cited the incorrect statutory provision and further states that, even if this were the case, it would not invalidate the notice. In Adams, the High Court found that an error in a Bankruptcy Notice which cited the incorrect statutory provision under which interest was claimed did not invalidate the Bankruptcy Notice but was a formal defect or irregularity which fell within the meaning of s.306(1) of the Act.

13. As the Court noted in Adams, s.306 of the Act assumes the possibility of some failure to comply with a statutory requirement; this is some defect or irregularity. In this case, it is not a defect which could mislead a debtor as to what is necessary to comply with the notice. Indeed, the Applicant Debtor does not challenge the interest charges except in so far as it relates to his general claim with respect to the inflation of the original amount by inclusion of interest under s.58 of the SC Act.

14. Clearly, the other issues raised by the Applicant Debtor as defects, for example the incorrect name on the affidavit, are not such as to mislead the Applicant Debtor and are, at most, errors which do not go to the substance of the claim.

15. The Applicant Debtor has contended since the filing of his first affidavit that he is solvent. He seems, however, to be under the misapprehension that the onus lies with the First Respondent to prove that he is insolvent. Having established compliance with the requirements of s.52 of the Act, of which I am satisfied, the onus is on the Applicant Debtor to establish that a Sequestration Order should not be made because he is solvent.

16. The hearing of this application was adjourned on several occasions because of the Applicant Debtor’s inability to present evidence in an appropriate form. The Applicant Debtor has consistently made statements about his affairs which are not supported by any documentary or other probative evidence. He frequently made statements from the bar table, despite directions that evidence be given by way of affidavit, that were riddled with hearsay. He denied debts existed on the basis that he disputed them even where judgment had been entered against him. He maintained that a debt did not exist because the owner of the business had been declared bankrupt. It was telling that, when he was asked, “Did you take much care when you were filling in this statement of affairs?” he replied “No, I didn’t take that much care at all”.[43]

    [43] Transcript of proceedings, 5 March 2014, p.16 at lines 15-16.

17. The only tangible assets identified by the Trustee, apart from two motor vehicles and the Applicant Debtor’s tools of trade, were the property from which he operated his business and the business stock. There was no sworn valuation of the property. Kerbside valuations obtained by the First Respondent varied between $160,000.00 and $230,000.00. On that basis, the Trustee valued the property at $200,000.00.

18. The Applicant Debtor, in his Statement of Affairs, valued the property at $220,000.00 but later submitted a one-page appraisal which suggested that it could fetch $235,000.00 in the market. There was no evidence that the Applicant Debtor had taken any steps prior to August 2013 to realise the value of the property in order to meet his debts. He agreed that there was a debt to Westpac of $125,000.00 which was secured against that property.

19. The Applicant Debtor conceded that his business, Grand Carpets, had made a loss of $73,000.00 in the 12 months prior to the making of the Sequestration Order. In his Statement of Affairs, the Applicant Debtor claimed stock of the value of $90,000.00 and plant and equipment of $26,000.00. He subsequently made various statements about the value of the stock. He produced no evidence of the value and would not

    
    

    co-operate with the First Respondent in obtaining a sworn valuation despite Court orders. The only documented evidence of the value of the stock and equipment was therefore that of Lockwoods who valued the business assets on an auction basis at $18,830.00.

1. An asset cannot be taken into account in bankruptcy proceedings to assess solvency without reference to the time it would take to effect realisation and produce cash. As at 6 August 2013, I am satisfied that the only reliable evidence of the value of the business assets was the valuation by Lockwoods of what could be realised on an auction basis. Further, by the time of the final hearing, the business assets were no longer in the hands of the Applicant Debtor or the Trustee. It is also reasonable to assume that if the Norton Drive property was to be auctioned it might realise between $200,000.00 and $220,000.00.

2. The situation with the Applicant Debtor’s liabilities is even less clear. The Trustee estimated the Applicant Debtor’s liabilities at $246,355.00. While the Applicant Debtor disputed some of these debts, his evidence concerning the basis on which he did so was not reliable.

3. On the material before me, I am unable to be satisfied that the

   
   

   Applicant Debtor was solvent either at the time Registrar Caporale made the original Sequestration Order or when the Application for Review was heard by the Court.

4. For these reasons I am satisfied that the Sequestration Order made by the Registrar should be affirmed.

I certify that the preceding eighty-three (83) paragraphs are a true copy of the reasons for judgment of Judge Whelan

Associate: 

Date:  20 May 2014