Lion Finance Pty Ltd v Tonga

[2018] FCCA 1938

FEDERAL CIRCUIT COURT OF AUSTRALIA

LION FINANCE PTY LTD v TONGA [2018] FCCA 1938

Catchwords:
BANKRUPTCY – Creditor’s petition based on debt in Magistrates Court proceedings – s.52(1) matters clearly established – debtor not able to establish capacity to pay debts as they fall due – debtor not understanding the bankruptcy process – no other sufficient cause why sequestration order should not be made – sequestration order made.

Legislation:

Bankruptcy Act 1966, ss.52, 149

Cases cited:

Totev v Sfar [2008] FCAFC 35

Sandell v Porter (1966) 115 CLR 666

Applicant: LION FINANCE PTY LTD
(A.C.N. 095 926 766)

Respondent: SIOSAIA TONGA

File Number: MLG 2726 of 2017

Judgment of: Judge Burchardt

Hearing date: 27 June 2018

Date of Last Submission: 27 June 2018

Delivered at: Dandenong

Delivered on: 27 June 2018

REPRESENTATION

Counsel for the Applicant: Mr Mazloum

Solicitors for the Applicant: CLH Lawyers

The Respondent: In person

ORDERS

1. That the orders made by Registrar Ryan on 6 February 2018

   
   

   are affirmed.

2. That the Application for Review is dismissed.

3. That a Sequestration Order be made against the estate of SIOSAIA TONGA.

4. The respondent creditor’s costs be taxed and paid from the estate of the applicant debtor in accordance with the Bankruptcy Act 1966.

5. The creditor’s costs of the rehearing be fixed in the sum of $7,635.

FEDERAL CIRCUIT COURT
OF AUSTRALIA
AT DANDENONG

MLG 2726 of 2017

LION FINANCE PTY LTD (A.C.N. 095 926 766)

Applicant

And

SIOSAIA TONGA

Respondent

REASONS FOR JUDGMENT

(Revised from Transcript)

1. On 14 December 2017 the petitioning creditor’s petition was filed.  It was based on a debt of $14,643.03 ordered by the Magistrates Court of Victoria at Werribee on 19 May 2017. On 6 March 2018, Registrar Ryan heard the matter and made a Sequestration Order. I am informed and accept that Mr Tonga’s bank account has been frozen by the Trustee since, save that the payments are made from that account for the mortgage on the family home.

2. Mr Tonga filed his Application for Review on 21 March 2018, well within the prescribed time.  Because the Registrar made the order, this review is a hearing de novo in accordance inter alia with the decision of the Full Court of the Federal Court in Totev v Sfar [2008] FCAFC 35.

3. Accordingly, the Court’s first deliberation is directed to s.52, subsection (1), of the Bankruptcy Act 1966 (“the Bankruptcy Act”). That relevantly prescribes that 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 remaining, and, if it is satisfied with the proof of those matters, may make a Sequestration Order against the estate of the debtor.

4. The affidavit proving the matters in the Petition is not the subject of any challenge. It is, of course, part of the Petition itself. There have been affidavits of service and debt recently filed. But in any event, service is not in dispute.  Indeed, Mr Tonga is here today. And there is no dispute that the debt on which the Petition rests has not been satisfied.

5. Those matters being the case and the Court being comfortably satisfied that they are made out, the Court turns to s.52(2) of the Bankruptcy Act, which is relevantly in these terms. If the Court is not satisfied with 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. There is authority not immediately available to me in the library in Dandenong that once the matters in s.52(1) are satisfied there is a prima facie entitlement to a Sequestration Order.

6. The first matter to be addressed is the question of solvency.  The matters that are before the Court are, in my view, threefold.  First, on 28 February 2016, as is apparent from one of the annexures to the affidavit of Bradley James Littlejohn, filed on 14 May 2018, Anglicare Victoria wrote on behalf of Mr Tonga “To whom it may concern”, albeit that this was plainly to representatives of the creditor seeking to resolve the matter.  The letter relevantly says:

   “I am writing to advise that Mr Siosaia Tonga is actively attending and engaging in financial counselling with Anglicare, beginning February 2018.  Mr Tonga has been with the same employer for a few years and earns an average wage of $1750 per fortnight.  Some unfortunate personal circumstances and health issues put him through financial difficulties which he is genuinely trying to address.

   Mr Smith –

   and that is plainly a typographical error.  It meant “Mr Tonga” –

   …is trying to make positive ground towards effective budgeting in order to maintain his obligations are under control.  He regrets that he can’t afford his debt in full at this stage, however, he is keen to settle his obligation and believes this can be achieved by offering realistic payments of $100.00 per week.

   There are then a few other irrelevant matters, but the letter continues:

   It is expected that, with continued counselling, Mr Tonga will in time become adequately informed and empowered to responsibly move forward with relation to his financial predicament.”

   There is a schedule annexed to that letter that shows indeed the surplus of approximately $100 per week in Mr Tonga’s income and expenditure.

7. I note that the effective period for repayment of the debt, leaving aside any interest or the legal costs imposed, would take approximately three years, and I point to the fact that that is very similar to the period in s.149 which provides for automatic discharge from bankruptcy three years after the provision of the statement of affairs.

8. The next matter to which I should refer is the matters raised in Court today by Ms Moala, Mr Tonga’s niece, whom I granted leave in the particular circumstances of the case to speak on his behalf.  I am informed that with the assistance of his wife and his children,

   
   

   Mr Tonga has in mind that it would be possible for him to repay this debt in approximately six months.  I note that Mr Tonga’s wife’s payslips were, in fact, annexed to his affidavit filed in the proceeding.

9. It is well established that a person does not immediately have to have the funds at hand to pay a debt to prove solvency.  In Sandell v Porter (1966) 115 CLR 666 (Sandell v Porter), the High Court found, and I read from the authorised headnote:

   “Insolvency is expressed in s 95 as an inability to pay debts as they fall due out of the debtor's own money. But the debtor's own moneys are not limited to his cash resources immediately available. They extend to moneys which he can procure by realization by sale or by mortgage or pledge of his assets within a relatively short time — relative to the nature and amount of the debts and to the circumstances, including the nature of the business, of the debtor. 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.

10. Putting the matter broadly, therefore, it is open to Mr Tonga to prove solvency by reference to other assets that might be made available to him. The difficulty, however, is that the six-month period to which he refers and which is plainly, at least in part, aspirational, is simply not sufficient, in my view, to prove that he is solvent within the meaning of the Act.

11. Taking into consideration his proposal through Anglicare as recently as 28 February 2018, and bearing in mind the, as I say, entirely aspirational basis upon which the matter is put before the Court, the Court cannot be satisfied that Mr Tonga is able to pay his debts as and when they fall due.  Indeed, while Sandell v Porter noted the mere fact that a debt may not have been paid for some time is not of itself proof of insolvency, the fact is that the debt on which this Petition is raised in a sum of almost $15,000 has been due since May of 2017.

12. The next question the Court has to consider is whether there is other sufficient reason why a Sequestration Order ought not be made. Nothing put by Ms Moala or that arises from the materials generally goes to suggest that there is other sufficient reason. Mr Tonga’s affidavit filed on 21 March 2018 does not put anything by way of other sufficient reason, and indeed is primarily concerned with a recitation of endeavours to settle which, as is clear from the materials, have not been made out.

13. It is clear that Mr Tonga is a good citizen. I fully accept that in the light of the materials appended to his affidavit, and I do not have any difficulty at all in accepting Ms Moala’s assertion that he has struggled to understand the nature of the proceeding and, indeed, the indebtedness that he finds himself in. The Court is sympathetic to those circumstances, but the matters required to be proved in s.52(1) of the Act are clearly satisfied.

14. It is clear that Mr Tonga is not in a position to satisfy the Court that he is able to pay his debts as and when they fall due.  There is no other sufficient reason why a Sequestration Order not be made, and I will make a Sequestration Order in the usual terms.  I note that the Court will dispense formally with re-service and re-verification, simply to avoid any confusion, and I note the date of the bankruptcy was

    
    

    24 November 2017, and I note the consent of the Trustee to act.

I certify that the preceding fourteen (14) paragraphs are a true copy of the reasons for judgment of Judge Burchardt

Associate: 

Date:  27 June 2018