Loyal No.46 v Miller
[2001] FMCA 30
•24 May 2001
FEDERAL MAGISTRATES COURT OF AUSTRALIA
Name: Loyal No. 46 Pty Ltd v Jennifer Doreen Miller
Citation No: [2001] FMCA 30
File No: BZ 203/00
Catchwords BANKRUPTCY – CREDITORS PETITION -
SOLVENCY – S5(1) AND S52(1) BANKRUPTCY ACT 1966
ApplicantLOYAL NO. 46 PTY LTD
Respondent: JENNIFER DOREEN MILLER
File No:BZ 203/00
Delivered on: 23 MAY 2001
Delivered at: Brisbane
Hearing Date: 30 March 2001
Judgment of: Baumann FM
REPRESENTATION:
Solicitors for the Applicant: Raj Lawyers of Brisbane
Solicitors for the Respondent: Respondent appeared in person
ORDERS:
I make a sequestration order against the estate of the respondent JENNIFER DOREEN MILLER.
The Applicant’s costs, including reserved costs (if any), be taxed and paid from the Estate of the Respondent in accordance with the Bankruptcy Act 1966.
IN THE FEDERAL MAGISTRATES COURT OF AUSTRALIA
BRISBANE REGISTRY
No BZ 203/00
LOYAL NO. 46 PTY LTD
Applicant
And
JENNIFER DOREEN MILLER
Respondent
REASONS FOR JUDGMENT
INTRODUCTION
This is an application which can be characterised as a contested creditors petition.
HISTORY
Loyal No. 46 Pty Ltd (“the Creditor”) as registered proprietor of a building known as Westcourt Plaza entered into a lease with MMS Franchising Pty Ltd (“the Company”) on or about 30 September 1994 for shop FC3.
In consideration for the Creditor entering into a lease with the Company JENNIFER DOREEN MILLER (“the Debtor”) and CARSON DOUGLAS MILLER jointly and severally guaranteed the performance of the Company under the lease pursuant to the terms of a written Lease Guarantee and Indemnity dated 27 July 1994 (“the guarantee”).
The Debtor was a director of the company. The Company entered into a Franchise Agreement on 9 February 1995 in respect of the business operated from shop FC3 Westcourt Plaza. The franchisee named was BASTAUR PTY LTD and FG & DK GRANDIDIER (“Grandidier”) guaranteed the performance of the company BASTAUR PTY LTD under the franchise agreement.
The lease over shop FC3 was not assigned to the franchisee, and clause 7.1 of the franchise agreement provided that the Franchisee “must not acquire a lease or any form of sub-lease to the premises without the prior written consent” of the Company.
The business operated at the premises seems to have ceased trading around January 1999. As a result of a failure by the Company (as Lessee) to pay rent and other outgoings under the lease, a demand against the company for $26,553.76 was raised.
The Debtors company MMS FRANCHISING PTY LTD was subsequently placed into liquidation, although the date of liquidation was not put in evidence before me. By Magistrates Court proceedings commenced in the Cairns Magistrates Court on 24 January 2000, the Creditor claimed against the Debtor a sum of $27,598.76 together with interest and costs, under the guarantee.
Judgement was obtained on 6 March 2000 by the Creditor against the Debtor as a result of a failure by the Debtor to file a notice of intention to defend and/or defence. It is this judgement which founded a Bankruptcy Notice issued on 20 June 2000 and served on 5 July 2000.
The Debtor has not at any time sought to set aside the judgement. Rather, it seems, the Debtor sought to encourage the liquidator of the company to commence proceedings against BASTAUR PTY LTD and Grandidier for recovery of the sum due of $26,533.76.
The Company’s liquidators by letter to the Debtor on 26 October 2000 stated: -
“I advise that I am aware of four creditors totalling approximately $60,000. I advise that I have not yet requested formal proof of debt as it is unknown if sufficient funds will be realised to enable a dividend to be paid.
The directors advise that debts totalling $227,999 are owed to the company. All of the debts are in respect of the franchisee agreements with the company and all are disputed. I do not consider that these debts will be easily collectable and as my administration is currently without funds it is unlikely that any funds will be realised in this respect. However, my solicitor has agreed to pursue the matter on a spec basis only and accordingly a statutory demand has been made in respect of a debt in the sum of $26,533.76”.
Subsequently the liquidators advised the Debtor by letter dated 10 November 2000 that the debt owed by BASTAUR PTY LTD of $26,553.76 had been settled for $5,000. The liquidator gave reasons to the Debtor for accepting the reduced sum, which they said amounted to a “sound commercial decision”.
The Creditor filed and served a Creditor’s petition and the Debtor filed in this Court a notice of intention to oppose on the grounds that: -
a) the Debtor is solvent; and
b) the Debtor is entitled to be indemnified for the claim of the Creditor.
ISSUES
The issues which I am asked by the Debtor to find in her favour when considering my discretion to sequestrate are: -
a) That the Debtor is solvent: or
b) That the Debtor has a right of indemnity.
The Debtor has not asked that I look behind the judgement to establish whether in reality a debt exists.
CONCLUSIONS
Solvency
The definition of solvency contained in the s5(1) of the Bankruptcy Act refers to the Debtor being “able to pay the persons debts as and when they become due and payable”. The Debtor bears the onus of establishing solvency.
The only evidence of solvency before me, is the Debtor’s affidavit filed 1 November 2000, showing assets and liabilities as follows: -
Assets
AMP Shares $180.00
Bank Accounts 47.64
Debtors
Mr & Mrs Grandidier & Bastaur Pty Ltd 40,000.00
Other Debtors to MMS Franchising
(Director) 226,000.00
$266,227.64
Liabilities
Credit Cards $7,000.00
Loyal No. 46 Pty Ltd covered by
Indemnity with Franchisee 26,000.00 Phil Leach (Arrangement in Place) 15,000.00
Eric Petrusma (Arrangment in Place) 4,000.00
$52,000.00
On this analysis the Debtor alleges a positive asset position of over $210,000 and also reveals an Annual Gross Income of $10,400.
No evidence was produced to establish the basis of any personal claim held by the Debtor against the franchisee and Grandidier. I suspect they represent some of the losses arising under franchise agreement, and therefore any such debts are due to the liquidator of the company. It is misconceived for the Debtor to regard those debts as her debts or her assets. Similarly, in circumstances where the liquidation has raised doubts about the collectability of certain alleged debtors of the company coupled with no evidence to establish any rights or prospect of the Debtor (as Director or otherwise) to a dividend from the liquidator, a claim of $226,000 as a personal asset is not substantiated. The Debtor has not satisfied me she is solvent.
INDEMNITY
Any obligations of BASTAUR PTY LTD and/or Grandidier under the franchise agreement accrued for the benefit of the company MMS Franchising Pty Ltd (in liquidation). The Debtor is not a party personally to that contractual arrangement.
It appears that, in accordance with usual business practice, the franchisor, MMS Franchising Pty Ltd retained control of the premises from which the franchisee operated the business, and no transfer of the lease or release of the Debtor under the personal guarantee was achieved from the Creditor. It follows that any right under the lease in favour of the Creditor against the Company and any rights under the guarantee in favour of the Creditor against the Debtor were preserved notwithstanding the creation of the obligations under the franchise agreement. This fundamental issue does not appear to have grasped by the Debtor when considering her personal liabilities.
CONCLUSION
In all the circumstances, I am satisfied the Debtor has committed the Act of Bankruptcy alleged in the petition. I am satisfied with the proof of the other matters set out in s52(1) of the Bankruptcy Act.
I certify that the preceding nineteen (19) paragraphs are a true copy of the reasons for judgment of Baumann FM
Associate:
Date: 23 May 2001
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