Maher v Maher
[2022] FedCFamC2G 147
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 2)
Maher v Maher [2022] FedCFamC2G 147
File number(s): MLG 892 of 2021 Judgment of: JUDGE SYMONS Date of judgment: 11 March 2022 Catchwords: BANKRUPTCY – Application for review of a sequestration order made by a registrar – whether debtor can pay debts – whether partnership assets can be realised within relatively short time – application dismissed Legislation: Bankruptcy Act 1966 (Cth) ss. 5, 40, 52 Cases cited: Australia & New Zealand Banking Group v Foyster [2000] FCA 400
Bechara v Bates (2021) 388 ALR 414; [2021] FCAFC 34
Deputy Commissioner of Taxation v Cumins (2008) 101 ALD 78; [2008] FCA 353
Edwards & Ors v Attorney-General & Anor (2004) 60 NSWLR 667; [2004] NSWCA 272
Sandell v Porter (1966) 115 CLR 666; [1966] HCA 28
Division: Division 2 General Federal Law Number of paragraphs: 38 Date of last submission/s: 21 February 2022 Date of hearing: 21 February 2022 Place: Melbourne Counsel for the Applicants Mr L Hogan Solicitors for the Applicants McNab McNab & Starke Solicitor for the Respondent David Joseph & Co Lawyers Solicitors for the Trustee in Bankruptcy Piper Alderman ORDERS
MLG 892 of 2021 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 2)
IN THE MATTER OF THOMAS CELESTINE MAHER
BETWEEN: DAMIEN MAHER
First Applicant
ROSEMARY MARGARET JOHNSTON
Second Applicant
CHRISTINE BURDEN
Third Applicant
PATRICIA ANNE MAHER
Fourth ApplicantJOHN JOSEPH MAHER
Fifth ApplicantDESMOND FRANCIS MAHER
Sixth ApplicantMICHAEL JAMES MAHER
Seventh ApplicantNATHAN KUPERHOLZ
Supporting CreditorAND: THOMAS CELESTINE MAHER
Respondent
ORDER MADE BY:
JUDGE SYMONS
DATE OF ORDER:
11 MARCH 2022
THE COURT ORDERS THAT:
1.The application for review filed by the respondent on 7 December 2021 is dismissed.
2.The estate of Thomas Celestine Maher be sequestrated under the Bankruptcy Act 1966 (Cth).
3.The applicants’ costs of the review proceeding be fixed in the sum of $8,251.21 and paid from the estate of the respondent debtor in accordance with the Bankruptcy Act 1966 (Cth).
Note: The form of the order is subject to the entry in the Court’s records.
Note: The Court may vary or set aside a judgment or order to remedy minor typographical or grammatical errors (r 17.05(2)(g) Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 17.05 Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth).
REASONS FOR JUDGMENT
JUDGE SYMONS
INTRODUCTION
This is an application for review of a sequestration and related costs order made by a registrar of this Court on 16 November 2021 against the estate of Thomas Celestine Maher (“Mr Maher”).
Mr Maher (through his legal representative) filed an application for review and an accompanying affidavit on 7 and 8 December 2021, respectively. The application for review, which by its nature, requires the prosecution (or, re-prosecution) by the applicant creditors of their petition, was heard by the Court on 21 February 2022 after both parties had filed further affidavit material and identified which of the material already filed, they sought to rely on.
The applicant creditors contend that there was then and remains now, a proper basis for a sequestration order to be made against the respondent. In the context of the specific argument made in this case, the applicants’ position is that Mr Maher is not able to prove his solvency for the purpose of s 52(2)(a) of the Bankruptcy Act 1966 (Cth) (“the Bankruptcy Act”).
NATURE OF THE PROCEEDING
In Bechara v Bates [2021] FCAFC 34 at [27] a Full Court of the Federal Court (Allsop CJ, Markovic and Colvin JJ) identified the following principles concerning the nature of a de novo haring by way of review of a sequestration order in bankruptcy made by a registrar:
(a)The application for review leads to a hearing de novo of the creditor’s petition.
(b)The hearing (or rehearing) of the creditor’s petition is not prosecuted by the debtor (applicant for review) but by the creditor in the proceeding in which the registrar’s order was made.
(c)The application for review is a demand that the claim for relief (the sequestration order) be heard by a judge.
(d)The onus is upon the creditor to prosecute its petition. The only onus of the debtor/bankrupt against whose estate a sequestration order has been made is to prove either solvency or any other sufficient cause under s 52(2) of the Bankruptcy Act 1966 (Cth).
(e)An appreciation of the above considerations makes it evident that summary or default judgment terminating an application for review is highly likely to be misconceived and founded upon a misconception that the applicant for review has an onus to prosecute an application or to show error in the approach of the registrar.
CREDITOR’S PETITION
The de novo character of the Court’s review jurisdiction requires, in a case involving a sequestration order that the judge hearing the review be satisfied as to the matters referred to in s 52 of the Bankruptcy Act.
Subsections 52(1) and 52(2) of the Bankruptcy Act, which identify matters as to procedure and proof of a creditors petition, provide:
(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 that 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.
(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 be made;
it may dismiss the petition.
The section 52(1) proofs
Although the focus of the respondent’s case on the rehearing was on s 52(2) of the Bankruptcy Act, the Court must nonetheless be satisfied as to the proof of the matters identified in s 52(1).
In this respect, the applicant creditors rely upon:
(a)an affidavit of Damien Maher dated 28 April 2021 verifying the creditor’s petition;
(b)an affidavit of service of bankruptcy notice sworn by Daniel Wilson on 19 March 2021;
(c)an affidavit of service of the creditor’s petition sworn by Daniel Wilson on 25 June 2021;
(d)an affidavit of debt sworn by Damien Maher on 18 February 2022 (the last business day before the hearing of the review application) in which Mr Damien Maher (one of the applicant creditors) deposed that each debt on which the applicant creditors rely is still owing; and
(e)an affidavit of final search sworn by David Skeels on 18 February 2022 in which Mr Skeels deposed that he caused a search to be conducted of the National Personal Insolvency Index (and attached a copy of an extract of the Index) and that the search disclosed that there were no references in the Index to the debtor (Mr Maher) other than for the reference to this application and that there were no details of a debt agreement, about the debt on which the applicant creditors rely, in the Index on the day when the petition was presented, and on the day when the search was made.
These documents, together with other material put before the Court in a joint court book prepared by the applicant creditors, reveal a procedural and substantive history by which:
(a)the applicant creditors rely on an act of bankruptcy under s 40(1)(g) of the Bankruptcy Act, namely, the failure of the respondent to comply with a bankruptcy notice issued on 3 March 2021;
(b)the bankruptcy notice was based on a judgment of the Supreme Court of Victoria in proceeding No S ECI 2020 03276 made on 1 October 2020 for $128,521.96, consisting of a debt of $123,750 and interest of $4,771.96;
(c)the bankruptcy notice was served on the respondent on 18 March 2021 seeking payment, within 21 days, of the sum of $128,521.96, pursuant to the judgment;
(d)on 4 May 2021, the applicant creditors filed a creditor’s petition together with certain affidavits and a consent of Mr Scott to act as the trustee;
(e)the creditor’s petition was served on the respondent on 22 June 2021;
(f)on 4 August 2021, the respondent’s (then) solicitor filed a notice of appearance;
(g)on 5 August 2021, the hearing of the petition was adjourned to 2 September 2021;
(h)on 30 August 2021, the respondent filed a notice stating the grounds of opposition to the petition, and a supporting affidavit. From the notice, the respondent contended that he was solvent, within the meaning of s 5 of the Bankruptcy Act, and able to pay his debts through borrowings over assets in which he had either a legal and beneficial interest or a beneficial interest;
(i)on 2 September 2021, orders were made further adjourning the hearing of the petition to 7 October 2021 following an application by the respondent. The respondent sought time to obtain finance to pay the claims of both the creditors’ petition and the supporting creditor (Mr Nathan Kuperholz). The hearing was adjourned again on 4 November 2021 including so as to provide time for the respondent to file any further affidavit material on the question of solvency;
(j)on 8 November 2021, the respondent filed an affidavit of solvency in which he identified a series of debts, including the debt the subject of the creditor’s petition;
(k)the creditor’s petition was heard on 9 November 2021 and resulted in the orders that are the subject of this review application being made on 16 November 2021.
Having reviewed each of the documents relied upon by the applicant creditors, and having regard to the position adopted by the respondent in this review, which does not put in issue matters of proof to which s 52(1) is directed, I am satisfied as to the following:
First, I am satisfied that the respondent committed an act of bankruptcy for the purpose of s 40(1)(g) of the Bankruptcy Act, constituted by his failure, before 8 April 2021, to comply with the bankruptcy notice that had been served upon him.
Second, I accept the affidavit verifying the petition as being sufficient proof of the matters stated in the petition (refer, s 52(1)(a)).
Third, I am satisfied of proof of service of the petition upon the respondent and that the debt relied upon is still owing (refer, ss 52(1)(b)-(c)).
In these circumstances, the applicant creditors have established a prima facie entitlement to the making of a sequestration order against the estate of Mr Thomas Celestine Maher: Deputy Commissioner of Taxation v Cumins [2008] FCA 353 at [14].
Section 52(2)
The position of the respondent debtor
In this application, the respondent invites the Court to find that he is able to pay his debts, for the purpose of s 52(2)(a) of the Bankruptcy Act.
The respondent relies, primarily, on an affidavit of his solicitor, David Joseph, sworn on 8 December 2021 and a solvency report prepared by Mr Malcolm Howell dated 1 February 2022 that was attached to a second affidavit sworn by Mr Joseph on 11 February 2022 (“Howell report”). The applicant creditors did not object to the respondent relying on the Howell report and did not seek to cross examine its author, Mr Howell, but made submissions that sought to undermine the reliability of the report in circumstances where it was not clear whether its author had been provided with all relevant information, including, especially, information relating to the partnership between the respondent and three of his brothers (Gerard, Anthony and David Maher) (“the Maher partnership”).
The respondent was represented at the hearing of the review application by Mr Joseph, who made the overriding submission that his client was solvent because he had readily sellable assets (property and stock) which, if sold, would result in a surplus to him, including after he satisfied outstanding debts. This position was also reflected in the Howell report, in which its author concluded that the respondent was currently solvent from a balance sheet perspective and that, subject to an important qualification, was also cash flow solvent. That important qualification being that Mr Maher was relying on property/stock sales or refinance of partnership assets to enable him to meet his short term commitments and this may require agreements to be made with his partners (refer p 7 of the Howell report).
The assets of Mr Maher were identified, both by Mr Joseph in his submissions to the Court and in the Howell report, as comprising:
(a)Mr Maher’s one quarter interest in a collection of rural lots of land in the Municipality of Strathbogie held jointly by the Maher partnership (“Maher partnership land”). Mr Maher relies upon an appraisal provided by Mr Everard of Elders Real Estate dated 14 February 2022 which estimates the Maher partnership land to have a present value of $11,050,000 as well as another appraisal provided by local real estate agent Mr John Stringer, which values the Maher partnership land as being in the vicinity of $9,577,995. It is this more conservative appraisal, as well as an earlier appraisal provided by Mr Everard in 2020 in the amount of $5,750,000 that Mr Howell relies upon in the preparation of his report so that Mr Maher’s one quarter interest in the Maher partnership land is valued by him at between $1,312,500 and $2,394,499.
(b)Mr Maher’s absolute interest, as sole proprietor, in vacant land located in High Street, Violet Town, which is valued at $350,000 and has been on the market for sale since late last year, albeit at an advertised price of $425,000.
(c)Mr Maher’s one quarter interest in stock owned by the Maher partnership. The Howell report operates on the basis that there are 1,800 head of cattle (based on Mr Maher’s instructions) and assigns a value to them of $2,500 each, with the result that Mr Maher has a quarter interest of $1,125,000. The Howell report refers also to other “significant assets”, including sheep, plant and equipment and motor vehicles, but does not assign a value to any of these assets as the author of the report was not able, in the time available to him, to seek updated financial statements or to obtain valuations of all property, stock and plant and equipment. Mr Joseph submitted that even taking a conservative approach to the number of cattle – based on the figure of 1,138 recorded in the Maher partnership livestock trading account for the year ended 30 June 2020 – Mr Maher’s interest would be worth at least $711,000.
(d)Mr Maher’s beneficial interest in a property situated at 75 Barnong Lane, Balmattum, which was bequeathed to Mr Maher by his father (Mr Thomas Patrick Maher). Although the title is registered in the name of Nathan Kuperholz, as administrator of the estate of Mr TP Maher, Mr Howell in his report, regards the property to be an asset available to Mr Maher, subject to payment of debts in the amount of $30,980 owing to the estate of Mr Maher’s father. The Barnong Lane property has an estimated valued (provided by Mr Stringer) of $480,000. It is characterised in the Howell report as a contingent asset.
Although Mr Joseph acknowledged that any attempt to divide assets of the Maher partnership might well be met with resistance from the other partners, he submitted that Mr Maher retained a right to (if necessary) have the partnership wound up so as to facilitate the division and sale of his share of the Maher partnership interests. Mr Joseph submitted that leaving to one side the Maher partnership land, his client – on the most conservative of estimates – had an interest in cattle in the amount of $711,000 and an interest in the Violet Town land of at least $350,000, which together would absorb all of Mr Maher’s debts.
Turning to the identification of liabilities, Mr Joseph referred to the proof of debts provided by the office of the trustee and reproduced as items 23 to 29 of the court book. These debts are as follows:
(a)Binnie and Associates Lawyers for legal fees and disbursements in the amount of $29,465.20 (with interest accruing);
(b)Australian Taxation Office in the amount of $7,665.15;
(c)Mr Damien Maher & Ors (being the applicant creditors) for outstanding judgment debts (including the judgment debt the subject of the creditor’s petition) and interest (accruing), in the amount of $151,508.73;
(d)Ms Carolyn Sparke QC for legal fees, in the amount of $57,845.70;
(e)Mr Nathan Kuperholz (in his capacity as administrator of the estate of TP Maher) for outstanding costs judgment in the amount of $30,980;
(f)McInnes Wilson Lawyers for legal fees and disbursements in the amount of $13,649.95;
(g)John Wallis for legal fees and disbursements in the amount of $243,879.
Although the respondent appeared to take issue with at least two of these debts in earlier material filed in the review, when the matter came before me, Mr Joseph did not seriously challenge the legitimacy of these debts or that they were presently owing. These seven debts have a combined value of $534,993.73.
Mr Joseph acknowledged that Mr Maher’s liabilities also included:
(a)a CBA mortgage over the Violet Town property in the amount of $51,619.00;
(b)fees in the amount of $107,521.70 owing to Zion Legal;
(c)an amount of approximately $35,000 in fees incurred by the trustee in relation to the administration of Mr Maher’s bankrupt estate and this proceeding (identified in the affidavit of Robert Ditrich of PwC Australia sworn 25 January 2022 at [11] ; and
(d)fees owed to Mr Joseph.
On this basis, Mr Joseph submitted that his client’s present indebtedness was in the order of $750,000.
However, as noted above, the submission was made on the respondent’s behalf that if he was to sell his interest in the stock (cattle) of the Maher partnership then this would comfortably absorb a debt of this magnitude and that the realisation of assets could be achieved within a “reasonable time”.
When asked what a “reasonable time” would look like in relation to this case, Mr Joseph submitted that it would be the time taken to wind up the Maher partnership (including, if necessary, by going to court to achieve this) and/or to sell plant and stock. It was submitted that a timeframe of possibly six or 12 months was realistic.
The position of the applicant creditors
The applicant creditors were represented at the hearing of the review application by Mr Hogan of counsel. In respect of the solvency issue, the applicant creditors relied upon:
(a)an affidavit of Mark Maier, solicitor for the applicant creditors, sworn 8 November 2021(and in particular paragraphs [5], [7] and [9] and exhibit “MAM-2” (orders 5 and 6);
(b)an affidavit of Lauren Buckley sworn 1 September 2021 (at [12]); and
(c)an affidavit of Robert Ditrich (liquidator) sworn 25 January 2022 (at [11], [13] and Exhibit “RSD-2”)
Mr Hogan submitted that Mr Maher was not able to pay his debts in circumstances where he had no available income beyond a fortnightly age pension payment of $494 (refer exhibit “TCM-1” to the affidavit of Mr Maher sworn 21 August 2021) and:
(a)had present debts, when interest was included, of between $312,841 and around $700,000. The latter figure was said to be more accurate and closely approximated the amount of $691,762.95 that had been described at p 14 of the Howell report as “almost certain”;
(b)contingent debts in the nature of orders for costs and damages arising from proceedings in the Supreme Court of Victoria (S ECI 2019 4596) which were yet to be assessed but, based on the valuation evidence, were last estimated by Mr Maier to be in the vicinity of $351,000; and
(c)other contingent debts which had been described in the affidavit of both Mr Maier and Mr Ditrich and which related to (as yet) unlitigated claims against Mr Maher and Gerard Maher for wastage to the estate of TP Maher and for costs.
totalling approximately $1,390,000.
Mr Hogan submitted that on the best-case scenario for the respondent, he had only one asset that was capable of being realised within a “relatively short time”, this being the Violet Town property. The applicant creditors did not challenge the “kerbside value” of the property but noted that it was subject to a mortgage in the amount of $52,000 and that selling costs in the amount of $12,000 had been estimated by Mr Maher. The net realisable amount from this asset was therefore $268,000. However, given that the Violet Town property had been on the market since 4 November 2021, it was submitted that there was some uncertainty as to whether it could in fact be readily liquidated.
The applicant creditors submitted that all other assets identified by the respondent were either not his, or subject to restrictions that made them incapable of realisation in the near term. In relation to the Maher partnership property, they pointed out that it was subject to clause 11 of the Partnership Deed (exhibit “TCM-2” to the affidavit of Mr Maher sworn 26 August 2021), which contains a restriction on pledging assets or a share in the partnership without first obtaining the consent of the other partners, and clause 12, which provides that others partners have a right of first refusal (3 months) in respect of any forced sale. The applicant creditors also referred to concessions made by the applicant that (i) he requires his brothers’ consent to force a sale of, or raise finance over partnership property (refer [7] of the affidavit of Mr Maher dated 26 August 2021) and (ii) that he had engaged in discussions with his brothers as to whether they would agree to allow him to borrow using security over the Maher partnership property but that he had been unable to obtain their consent (refer [6] of the affidavit of Mr Maher sworn 1 September 2021).
Insofar as the respondent identified the Barnong property as a realisable asset, the applicant creditors challenged this contention on the basis that the property was currently held by Mr Kuperholz and that there were a number of costs associated with the property that included the amount of $30,980 plus interest outstanding to Mr Kuperholz, outstanding statutory rates and charges in the amount (as at 21 February 2022) of $23,095.45 (refer affidavit of Lauren Buckley sworn 21 February 20222 at [5]) and clean-up costs of an unascertained amount. The applicant creditors further submitted that there was no evidence before the Court as to the saleability of the Barnong property, even allowing for the eventuality that ownership might, at some future date, transfer to the respondent. There was also no evidence as to whether the respondent had taken steps to understand whether he might be in a position to obtain finance on the security of the Barnong property.
The applicant creditors submit that in order to provide proof of solvency, the respondent must show, using such cash resources as he has or can command through use of his assets within a relatively short time (relative to the nature and amount of the debts and to his circumstances) that he can meet his debts as and when they fall due (referring to Sandell v Porter (1966) 115 CLR 666 at 670).
The applicant creditors submit that the consideration of debts should include present debts and those that will fall due in the reasonably immediate future pursuant to existing obligations, with the significance of contingent debts to be assessed having regard to the degree of likelihood that they will crystallise into actual or present liabilities falling due in the short-term future (referring to ANZ v Foyster [2000] FCA 400 at [19] and Edwards v Attorney-General (NSW) (2004) 60 NSWLR 667 at [59]-[60]).
The applicant creditors submit that the respondent’s present debts are significant (circa $700,000) and he has further contingent debts arising from Court orders that are awaiting only assessment and that there is the prospect of further debts accruing in respect of the future court hearings. The submit, having regard to the difficulties that inhere in the Maher partnership around the obtaining of consent and there being no evidence before the Court of any steps being taken to have the partnership wound up or any indication as to how long this process (if commenced) might take to conclude, the Court cannot be satisfied on any measure that the respondent is solvent.
CONSIDERATION
Although the applicant creditors invite the Court to evaluate the question of the respondent’s solvency against a level of indebtedness that includes a combination of present, contingent and prospective debts, the matter can be determined by proceeding on the basis that at the very least, the respondent has present (certain) debts in the amount of approximately $750,000. This reflects the submissions made by the respondent at the hearing of the review application and the material (including the proofs of debt) that are before the Court. For reasons that will become apparent, I have found it unnecessary to resolve the question of the level (if any) of the respondent’s indebtedness that might arise from claims that are best characterised as contingent and/or prospective.
The question of whether the respondent is able to pay his debts is not answered simply by reference to a balance sheet analysis. Instead, as this case perfectly illustrates, the inquiry must take account of the nature of the identified assets and the ability of the respondent to convert those assets into cash within a relatively short time.
The difficulty for the respondent is that, on his own case, he will not be in a position to pay all of his debts unless he is able to liquidate some at least of his interest in the Maher partnership. Historically, the respondent has not been able to achieve this result, including, it would seem, because the Partnership Deed requires the respondent to obtain the consent of the other partners to do so and because that consent has not been forthcoming.
While there may be mechanisms available to the respondent to force a sale, including through the dissolution of the Maher partnership, there is presently no evidence before the Court as to how, and, critically, across what timeframes, such a process might occur. There is presently no evidence before the Court as to whether, in the event that such process was to take place, the assets of the Maher partnership would be amenable to realisation, either through their sale or a form of pledge or mortgage. The Court is unable in these circumstances to make any rational projection as to when (if ever) the respondent might be in a position to pay his debts.
It follows that the respondent has not satisfied me that he is able to pay his debts for the purpose of s 52(2)(a) of the Bankruptcy Act. That being the case, and having regard to my findings in relation to s 52(1), the conditions for the sequestration of the respondent’s estate are fulfilled.
I certify that the preceding thirty-eight (38) numbered paragraphs are a true copy of the Reasons for Judgment of Judge Symons. Associate:
Dated: 11 March 2022
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