Mark P. Clayton v Deputy Commissioner of Taxation

[1992] FCA 724

Re: MARK P. CLAYTON and JILL C. CLAYTON
And: DEPUTY COMMISSIONER OF TAXATION
Nos. N P1991 and 1992 of 1990
FED No. 724
Bankruptcy

COURT

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY
BANKRUPTCY DIVISION
Foster J.(1)

CATCHWORDS

Bankruptcy - Proceedings in connection with sequestration - Allegation that sufficient cause demonstrated for sequestration order not to be made - Whether being named as company secretary but playing no active part in the administration sufficient cause - Whether being devoid of assets sufficient cause - whether Re Leonard; Ex parte Leonard (1896) 1 QB 473 should be followed - whether s 52 Bankruptcy Act requires Court to give any consideration to matters raised by present applicant to support sufficient cause.

Bankruptcy Act 1966 (Cth) - s 52

Bayne v Blake (No. 21 (1909) 9 CLR 360

Re Field (1978) Ch at 371

Re Leonard; Ex parte Leonard (1896) 1 QB 473

Darcey v The Pre-Term Foundation, unreported, Full Court of the Federal Court of Australia, 23 May 1988

HEARING

SYDNEY

#DATE 19:5:1992

Counsel for Jill Clayton: G.J. Tabuteau

Instructed by: Penmans

Counsel for Mark Clayton: W.S. Corbishley (Solicitor)

Instructed by: Collins and Thompson

Counsel for the Petitioning Creditor: B. Skinner

Instructed by: Australian Government Solicitor

ORDER

THE COURT ORDERS THAT:

1. a sequestration order be made against the estate of Mark P. Clayton;

2. a sequestration order be made against the estate of Jill C. Clayton;

3. costs, including reserved costs, be taxed and paid according to the Bankruptcy Act 1966.

Note: Settlement and entry of orders is dealt with in Rule 124 of the Bankruptcy Rules.

JUDGE1

The Court has before it two petitions for sequestration brought on behalf of the petitioning creditor, the Deputy Commissioner of Taxation (the "Commissioner"). The first petition is brought against Mark Clayton and the second petition against Jill Clayton. The debtors were apparently, at the stage when the petitions were presented, husband and wife. That has ceased to be the position and the debtor Jill Clayton has re-married. There is no opposition to the granting of the petition against the debtor Mark Clayton. The granting of the petition against the debtor Jill Clayton has, however, been opposed. Reliance has been placed on her behalf upon the wording of s 52(2)(b) of the Bankruptcy Act 1966 (Cth) (the "Act"). It is claimed on her behalf that as a result of material placed before me today sufficient cause has been demonstrated for a sequestration order not to be made against her.

1. The bases of the petitions brought against each of the debtors are judgments of the District Court of New South Wales in the original sum of $82,378.23. These judgments were joint judgments obtained against each of the debtors on the basis that there was a partnership debt owing in that amount. The debt to the Commissioner in respect of which these judgments were obtained, is, I have been told, a debt based upon failure to pay group instalments.

2. There is some difficulty in understanding precisely the basis of the original debt. Reference is made in material placed before me to a company, Abrowill, which is said to have carried on businesses in relation to waste disposal and printing. It seems that these businesses were also regarded as the businesses of the partnership between the two debtors. The nature of the debt certainly suggests that the two debtors were joint employers of employees. However, as has been properly pointed out to me, there has never at any stage been made any attack upon the existence of the debt. The judgment in the District Court was obtained by default. It is plain that no steps were made to set it aside. So far as this Court is concerned regard can only be paid to the fact that the debt existed and founded the judgment.

3. The judgment in question was entered on 27 December 1989. Bankruptcy notices were issued and served upon each of the debtors; the amount in the Bankruptcy notice was $87,259.98. It is clear that the difference between the amount which is the subject of the notice and the amount of the judgment would be due to accrued interest. Acts of bankruptcy were duly committed by each of the debtors through failure to comply with the notices. Thereafter, creditors' petitions based upon these acts of bankruptcy were presented in August of 1990.

4. The petitions have been before this Court on a large number of occasions when adjournments were sought and granted. The circumstances of those adjournments have been brought to my attention and dealt with to some extent in affidavits that have been read before me on behalf of the debtor Jill Clayton. It seems quite clear from those affidavits that throughout the period when adjournments were sought and granted Jill Clayton was making considerable efforts to arrange for the sale of assets jointly owned by herself and her then husband, the other debtor, in order to meet the debt claimed in the petition.

5. The major asset sought to be sold was the jointly owned home. The evidence set out in the affidavits suggests very strongly that there were reasonable grounds for hoping at the outset of efforts being made to sell it that a price would be realised sufficient to discharge the indebtedness upon which this petition is based. It may well be that had Mrs Clayton been able to prevail upon her then husband to take more expeditious steps and to evince a greater deal of co-operation than he probably did, the house might have been sold earlier and at a better price. Reference is also made in affidavits upon which she relies to efforts made on her behalf to achieve an earlier and no doubt more fruitful sale of assets which for present purposes I must regard as partnership assets apparently relating to the waste disposal business.

6. It seems that those assets are still available and must, for the purposes of this application, still be regarded as jointly owned assets, the realisation of which even at this point of time, will go towards the defraying of the debts of the petitioning creditors. It seems that adjournments were also granted along the way after the service of the petitions because representations were made that some accounting procedures were to be put in place which would have the result of establishing that there were losses to be carried forward which should have some bearing upon the amounts owing to the Deputy Commissioner. The details of this have not been placed before me, nor do I currently understand how these efforts, had they been successful, would have affected the situation in relation to the commission of the acts of bankruptcy.

7. In any event, despite no doubt reasonable expectations on the part of Mrs Clayton that something was going to be done along these lines, nothing was in fact done. What she tells the Court through her affidavits and her oral evidence is that although she was in partnership with her ex-husband in relation to these business ventures she was not in any way an active partner. She was apparently the secretary and also a director of the company whose relationship to all these matters remains shrouded in obscurity. She tells the Court, and there seems no reason whatever not to accept her statement to this effect, that in the partnership and in the company, she played no active part and was unable to exercise any control over what was occurring.

8. She asks that these matters be taken into account in relation to the defence that she raises to the granting of this petition based upon s 52(2) of the Act. She puts to the Court that they go towards establishing sufficient cause for the rejection of the petitioning creditors petition. She also puts before the Court that she is, for practical purposes, devoid of assets and that the sequestrating of her estate would be futile in that there would be nothing thereby produced which could be beneficial to her creditors and in particular to the petitioning creditor. So far as this latter submission is concerned it is, I feel, foreclosed against her by the course of authority to which I have been referred. The earlier cases of Bayne v Blake (No. 2) (1909) 9 CLR 360 and in Re Field (1978) Ch at 371 certainly provide authority against my accepting that proposition as basing an exercise of discretion in her favour.

9. A passage from the early decision of Re Leonard; Ex parte Leonard (1896) 1 QB 473 at 475 is regularly cited in cases of this kind. I refer simply to the passage most frequently relied upon from the judgment in that case. That passage reads as follows:
   

"The court cannot at that stage tell whether the proceedings in bankruptcy will have no result. If the debtor is made bankrupt, there will be a public examination of him, and then it may be ascertained whether he has any assets. At the time of the petition and adjudication the Court has not the proper materials for judging whether there are assets or not."

1. Although it has been cogently put to me that there is no practical likelihood of Mrs Clayton having assets that would be revealed in proceedings properly brought after her having been made bankrupt I cannot ignore the force of these earlier authorities. All of them are referred to in Darcey v The Pre-Term Foundation, unreported, Full Court of the Federal Court of Australia, 23 May 1988. As to the other matters raised it is impossible, of course, not to feel considerable sympathy for the position of Mrs Clayton, accepting as I do that she made extensive efforts to achieve sales of assets at an earlier point of time when the amount realised might have been sufficient to produce a situation where the petition against her was withdrawn.

2. I do not think, however, that these considerations of sympathy really can enter into the exercise of the discretion which the Court has. Under s 52(2) of the Act the orderly administration of the bankruptcy legislation and the orderly distribution of the estates of persons who are unable to pay their debts and thus become amenable to the jurisdiction in bankruptcy of this Court requires in my view that scant, if any, consideration can be given to matters such as have been brought to the attention of the Court by the debtor Jill Clayton. In the circumstances I feel that I cannot exercise the discretion that I have been asked to exercise in favour of the dismissal of the petition. In my view both petitions must proceed.

3. The material in relation to the petitions has been placed before the Court and on the basis of that material I am satisfied that each of the debtors has committed the act of bankruptcy alleged in the respective petitions brought against them. I am satisfied as to the proof of other matters required by s 52(1) of the Act. I decline to exercise in favour of the debtor Jill Clayton the discretion reposed on me by s 52(2) and accordingly I make a sequestration order on each of the petitions against the estate of each of the debtors. I order that costs, including reserved costs, be taxed and paid according to the Act and I direct that a draft of this order be delivered to the Registrar within seven days in accordance with r 124(2) of the Bankruptcy Rules.