National Australia Bank Limited v Oberg - [2012] FMCA 233

FEDERAL MAGISTRATES COURT OF AUSTRALIA

NATIONAL AUSTRALIA BANK LIMITED v OBERG

[2012] FMCA 233

BANKRUPTCY – Creditor’s petition – whether debtor satisfied court that he is able to pay his debts within s.52(2)(a) of the Bankruptcy Act 1966.

Bankruptcy Act 1966 (Cth), s.52
Evidence Act 1995 (Cth), s.135
Tax Agent Services Act 2009 (Cth), s.20.45

Abignano; in the matter of Abignano v Wenkart [1999] FCA 1695
Australia & New Zealand Banking Group Pty Ltd v Foyster [2000] FCA 400
Bowen, Re; Ex Parte Debtor [1924] B and CR 32
Deputy Commissioner of Taxation v McCormick(No 2) (2005) 218 ALR 665; [2005] FMCA 729
Eykamp v Deputy Commissioner of Taxation (2010) 8 ABC(NS) 105; [2010] FCA 797
Randall v Deputy Commissioner of Taxation [2008] FMCA 858
Re Sanders; Knudsen and Yates (t/a The Hargreaves Practice) v Sanders (2003) 1 ABC(NS) 408; [2003] FCA 1079
Re Wardle, ex parte Widin v Australia and New Zealand Banking Group Limited (1987) 70 ALR 633
Rotstein v Slaveski (2010) 8 ABC(NS) 200; [2010] FCA 493
Sandell v Porter and Another (1966) 115 CLR 666; [1966] HCA 28

Applicant:

NATIONAL AUSTRALIA BANK LIMITED

Respondent:

COLIN OBERG

File Number:

SYG 1793 of 2011

Judgment of:

Barnes FM

Hearing date:

28 February 2012

Delivered at:

Sydney

Delivered on:

27 March 2012

REPRESENTATION

Counsel for the Applicant:

Mr M Lewis

Solicitors for the Applicant:

Group Governance and Legal

Counsel for the Respondent:

Mr J Rose

Solicitors for the Respondent:

Bamford Lawyers

ORDERS

A sequestration order be made against the estate of Colin Oberg.
All proceedings under the sequestration order be stayed for a period of 21 days from the date of these orders.
The applicant creditor’s costs (including any reserved costs) be taxed in accordance with the Federal Court Rules and paid from the estate of the respondent debtor in accordance with the Bankruptcy Act 1966 (Cth).
The applicant creditor give a copy of this sequestration order to the Official Receiver in Sydney within 2 days.

THE COURT NOTES THAT:

The date of the act of bankruptcy is 9 August 2011.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA
AT SYDNEY

SYG 1793 of 2011

NATIONAL AUSTRALIA BANK LIMITED

Applicant

And

COLIN OBERG

Respondent

REASONS FOR JUDGMENT

On 16 August 2011 the applicant creditor, National Australia Bank Limited (NAB), presented a creditor’s petition seeking that a sequestration order be made against the estate of the respondent debtor, Colin Oberg. The petition asserted that the debtor owed the creditor the amount of $1,244,160.50 pursuant to a judgment of the New South Wales Supreme Court of 13 May 2011.
In a notice stating grounds of opposition to the petition filed on 25 November 2011, the respondent debtor indicated that he intended to oppose the petition on four grounds. At the hearing counsel for the respondent confirmed that grounds one to three were not pressed. Hence the only ground relied on by the respondent is that he is “solvent”. It is clear that this is intended to be a contention that the court should be satisfied by Mr Oberg that he is able to pay his debts as provided for in s.52(2)(a) of the Bankruptcy Act 1966 (Cth) and on that basis should dismiss the petition.
In oral submissions counsel for the debtor sought in the alternative that if the court was “disposed” to make a sequestration order, it should either adjourn the hearing of the petition, delay the effect of the sequestration order or stay proceedings under the sequestration order under s.52(3) of the Bankruptcy Act.
It is convenient to consider first whether Mr Oberg has satisfied the court that he is able to pay his debts within s.52(2)(a) of the Bankruptcy Act. He relied on only three of the several affidavits he has filed in these proceedings: his affidavit of 8 February 2012 and the affidavits of Mark Peters of 25 November 2011 and 13 December 2011.
I accept that, as NAB submitted, the evidence from Mr Oberg in relation to his financial position is incomplete, and in some respects inconsistent. It is unaccompanied by any corroborative documentation. Such evidence as there is in relation to his financial position is nonetheless relevant, having regard to the fact that he seeks to rely on s.52(2)(a) of the Bankruptcy Act. However the limited evidence before the court is not, for the reasons given below, sufficient for the court to be satisfied that Mr Oberg is able to pay his debts within s.52(2)(a) of the Act.
The respondent debtor bears the burden of establishing that he is able to pay his debts within the meaning of s.52(2)(a) of the Act (see Re Sanders; Knudsen and Yates (t/a The Hargreaves Practice) v Sanders (2003) 1 ABC(NS) 408; [2003] FCA 1079 at [22]) and it is not sufficient for the debtor simply to establish that he has assets which exceed his liabilities in value. As Bennett J stated in Re Sanders at [22]:
It must also be established that the assets are available to be realised and capable of ready realisation.
(Also see Australia & New Zealand Banking Group Pty Ltd v Foyster [2000] FCA 400 at [17]).
It is relevant to have regard to the debtor’s financial position “in its entirety” (Sandell v Porter and Another (1966) 115 CLR 666 at 671; [1966] HCA 28) and “generally speaking a conclusion of insolvency ought not to be drawn simply from evidence of a temporary lack of liquidity” (Ibid).
As Buchanan J stated in Eykamp v Deputy Commissioner of Taxation (2010) 8 ABC(NS) 105; [2010] FCA 797 at [7]:
Under an earlier definition in the [Bankruptcy] Act considered in the Sandell v Porter (1966) 155 CLR 666 it was necessary for a debtor to be able to pay debts as they fell due out of the debtor’s own money. Such moneys extended to those capable of being procured by sale, by mortgage or pledge of assets of the debtors within a relatively short time. A more flexible position now obtains. I note that in International Alpaca Management Pty Ltd v Ensor (1999) FCA 72, Katz J favoured the view that the necessity to pay a debt from a person’s own money continued to be an important element in the scheme established under the Act (see, eg, S1 to 4(3)(a) of the Act). However, with respect, so far as it concerns consideration of whether a person is, or is not, solvent, I prefer the view taken by Palmer J in Lewis v Doran (2004) 184 FLR 454 at [116] (see on appeal Lewis v Doran (2005) 219 ALR 555 at 109-112) to which I subscribed, with the agreement of Marshall and Tracey JJ in Whitton at 34 to 38. Accordingly it would not be impermissible to pay regard to the fact that Mrs Eykamp could raise sufficient money to pay the debt, whether or not that was the direct result of sale, mortgage or pledge of her assets. However, whatever mechanism is employed to secure the necessary funds, and satisfy the court that it provides adequate evidence of solvency, it remains necessary that it produce results within a realistic timeframe (Sandell v Porter at 670, Hall v Poolman (2007) NSWSC 1330; 65 ACSR 123 at [187]). (Emphasis added).
Whether the debtor can establish that he has assets that could be realised in a relatively short time or that he is otherwise able to pay his debts is a question of fact for the court to determine on the material before it.
Mr Oberg is an accountant and a registered tax agent. He provided a list of assets and liabilities. His assets were said to consist of a 1995 Toyota Camry with a value of $2,000, various (unspecified) bank accounts containing cash of approximately $5,000 (in relation to which there is no supporting evidence), a “loan to Peters Group” of an asserted value of $55 million and a loan to “McDonald Group” of an asserted value of $1.5 million. On this basis his assets were said to have a total value of $56,507,000. Mr Oberg’s liabilities were listed as credit card debts to NAB, Westpac and CBA of approximately $150,000, the debt to NAB (the petitioning creditor) of approximately $1,250,000, a liability which he describes as a liability of his accountancy practice being a potential liability under a guarantee to the Trustee of the Estate of the late CJ Macryannis (a supporting creditor who has filed a notice of appearance) in the sum of $300,000 and a liability in relation to the loan to the Peters Group in the sum of $50 million. His total liabilities were said to amount of $5,170,000. His net assets, which he said were all held in Australia, were said to be to the value of $4,807,000.
Mr Oberg conducts an accountancy practice through a corporate entity, Oberg Accountancy Pty Ltd (OAPL). OAPL secured a borrowing by him from a Lyn James of approximately $1.3 million. This borrowing was not included in the list of assets and liabilities. Lyn James holds a fixed and floating charge over OAPL. The loan balance was said to be approximately $1 million. Mr Oberg “believed” that his accountancy practice was worth $1 million in terms of goodwill and his personal goodwill. There is no corroborative evidence for such a claim. OAPL is said to owe the Australian Taxation Office (ATO) $300,000. Mr Oberg claimed payment was not being pressed by the ATO. He considered that the shares he held in OAPL were of no value. There is no supporting evidence in relation to the assertions about the ATO.
Somewhat unsatisfactorily, nowhere in his affidavit evidence did Mr Oberg explain or provide any evidence in explanation of the asserted loan to McDonald Group which he simply stated was an asset of $1.5 million value.
His claims in relation to the asserted loan (described elsewhere in his affidavit as loans) to the Peters Group include a claim that the funds he received from NAB were paid to a “third party” who was not otherwise identified, at the request of Mark Peters, a client of his accountancy practice. Mr Oberg’s explanation for the manner in which this arose was that in March 2006 Mr Peters owed his accountancy practice approximately $130,000 in fees, and also owed him $20,000 personally (which Mr Oberg had lent Mr Peters to assist with his personal financial position). It was in these circumstances that Mr Peters approached Mr Oberg in about March 2006 and said that he had invested funds in an offshore investment with business associates and needed “further funds” to pay for various costs associated with those investments that would enable him to return the money he owed Mr Oberg together with funds he wanted to borrow from Mr Oberg. Mr Oberg’s evidence is that he lent Mr Peters a further $30,000 as a result of that conversation, but did not receive the money owed by Mr Peters. There is no documentary evidence as to any such transactions or loans.
Notwithstanding Mr Peter’s failure to repay such debts, in April 2006 Mr Oberg had a further conversation with Mr Peters in which Mr Peters stated that he would like to make an investment opportunity available to Mr Oberg and his clients, that funds invested through him would receive interest at 10 per cent per annum that would be passed on to the people from whom Mr Oberg could borrow the funds and that he would also pay Mr Oberg a brokerage fee.
Mr Oberg claimed that from April 2006 until February 2012 he had invested approximately $3 million of his own funds through Mr Peters and that he had borrowed a total of “approximately” $50 million from “about” 100 clients which was invested in Mr Peters’ investment. Again there is no corroborative documentation. Mr Oberg’s evidence was that his arrangement with Mr Peters was “only an oral one” and that he understood from statements Mr Peters had made that his arrangements with the “recipients” of those funds were also oral. Mr Oberg claimed that he had previously observed Mr Peters enter into oral business arrangements which had come to fruition and he believed that “those creditors” would be paid out in full when the funds lent to Mr Peters were returned, but that as a result of the oral nature of the agreement such funds would be “much harder to obtain” if he were to be made bankrupt.
Mr Oberg’s evidence on 8 February 2012 was that he expected to have transmitted to him approximately $55 million from this investment on 10 February 2012 in circumstances where from December 2011 he had continued to press Mr Peters for repayment of the funds owing to him and his clients, meeting with him two or three times per week and sending and receiving SMS messages on a daily basis. His evidence was that he had been told by Mr Peters he expected the funds would be repaid within 10 days on 1 February 2012 and that he had received a message to that effect from a person identified only as “David” (whom Mr Oberg had not met but believed to be connected with the unidentified “end recipient” of the funds). Mr Oberg’s evidence was that he believed he would be able to pay NAB’s judgment debt after 10 February 2012. That has not occurred. This is scant and unsatisfactory evidence as to the nature, terms and prospects of repayment of such loan or loans.
Mr Oberg’s evidence in relation to the liability to the Estate of the late CJ Makryannis was that he was the guarantor of a debt owed by JR International Pty Ltd which purchased an accountancy practice in 2006 and owed $300,000 to the Trustee of the estate in relation to that purchase. His evidence was that no demand had been made of him to pay any funds under that guarantee. Counsel for Mr Oberg submitted that on that basis such item ought to be discounted as it was not presently due and payable.
Mr Oberg also disclosed his income and expenditure on an annual basis (again without any supporting documentation). His calculations were that his annual income was $84,000 and that after taking his total expenditure into account, the surplus per annum was the sum of $510.
It is clear, having regard to this evidence and the figures in the table of assets and liabilities in his affidavit, that Mr Oberg’s ability to pay the debt of over $1.2 million due and owing to the applicant creditor (and his other debts) is dependent on the two asserted loans being repaid to him from the Peters Group and the McDonald Group. Apart from these loans the only assets disclosed by Mr Oberg are bank accounts containing approximately $5,000 and a car of the approximate value of $2,000 (for which there is no documentation). On his own evidence Mr Oberg’s income does not produce a meaningful surplus over expenditure.
Mr Oberg’s assertion that his assets exceed his liabilities, even if accepted at face value, does not establish that he is able to pay his debts within s.52(2)(b) as this does not address the issue of whether or not such assets are capable of ready realisation in the sense considered in Re Sanders and in Eykamp.
The debtor has not satisfied me that there are assets available that are able to be realised or to provide available funds within a realistic timeframe.
The only supporting evidence in relation to the debtor’s claims about the Peters Group Loan is the affidavit evidence of Mark Peters. Mr Peters’ evidence is that he borrowed funds from Mr Oberg in excess of $1.5 million (which is not listed separately from the general liability to the so-called Peters Group in Mr Oberg’s description of his assets). As at 25 November 2011 Mr Peters claimed to believe he would be able to arrange payment to Mr Oberg of a sum in excess of $1.5 million. This did not occur. As at 13 December 2011 he expected that funds would be paid to Mr Oberg in late January 2012. Again this did not occur.
There is no cogent or compelling supporting evidence to establish the nature, extent and circumstances of the Peters loan. Neither in Mr Oberg’s or Mr Peters’ evidence is there any clarification of the purpose or terms of the loans (other than the fact that people could expect 10 per cent interest) or the basis on which the loan would be repaid.
Further, there is some inconsistency in the limited evidence before the court. While Mr Oberg says that the Peters Group loan was paid to an unknown third party at the request of Mr Peters (at least that part of the funds received from the applicant creditor), Mr Peters’ evidence is that he borrowed funds from Mr Oberg in excess of $1.5 million and on-lent the funds received from Mr Oberg. According to Mr Oberg his net assets are all held in Australia. It is not clear how this claim is to be reconciled with the claim about funds being provided for an offshore investment.
Also, the Peters Group loan appears in effect as a net personal asset to the value of $5 million in the table of assets and liabilities. Mr Oberg stated that he had invested “approximately” $50 million from “about” 100 clients through Mark Peters and “approximately” $3 million consisting of his own funds (apparently in addition to the “approximately” $20,000 lent to Mr Peters before March 2006 and the amount of $130,000 Mr Peters owed to OAPL). However Mr Oberg provided no evidence as to the derivation of the additional $2 million in the claimed $55 million value of the loan to Peters Group.
As indicated, there is no explanation at all in the evidence relied on by the debtor of the circumstances in which it is asserted that he has an asset consisting of a loan of $1.5 million to what is described as “McDonald Group”. There is no cogent or compelling evidence to establish that the McDonald Group Loan exists or, if it does, that it will be or could be repaid in the immediate future or within a realistic time frame.
In submitting that the court could be satisfied on the material before it that Mr Oberg was able to pay his debts within s.52(2)(a) of the Act, counsel for Mr Oberg relied, to some extent, on the contention that the level of evidence provided was such as was regularly provided to courts, particularly in the context of instalment applications, examination summonses and the like. The fact that evidence of this nature may be provided in other contexts does not mean that a bare listing of assets and liabilities in the absence of supporting corroborative evidence or complete details of the asserted assets and liabilities is sufficient to satisfy the court that the debtor is able to pay his debts such that a sequestration order ought not to be made.
There is some evidence from Mr Peters (albeit very limited) to support the contention that he borrowed some funds from Mr Oberg which he on-lent to an undescribed party where the funds were pooled with funds from another source, but also evidence as to unrealised expectations as to the return of such funds. This evidence is not such as to enable the court to find that Mr Oberg could discharge his debts within a realistic timeframe.
This matter has been before the court for some considerable time. Mr Oberg has obtained a number of adjournments in the past on the basis that funds would very shortly be to hand, in particular from the loans to the Peters Group, such as to put him in a position to repay the loan to the NAB. This has not eventuated.
It has not been established that Mr Oberg is merely suffering a temporary illiquidity in the sense considered by Barwick CJ in Sandell v Porter. Contrary to the submission that the efforts he has been making to recover funds makes that clear, the unsuccessful efforts he has been making to recover the funds that he asserts he is entitled to do not support the proposition that he would be able to realise such assets and to be in a position to pay his debts within a realistic timeframe. Nor am I so satisfied on any of the other evidence before the court.
The evidence from the debtor is not such as to constitute comprehensive evidence as to his assets, liabilities, income and outgoings such as to enable me to be satisfied that he is able to pay his debts within s.52(2)(a) of the Act. On the limited evidence he has chosen to put before the court, Mr Oberg has not established that he would be able to pay his debts within the immediate future or within a realistic timeframe.

As the respondent has not satisfied me that he is able to pay his debts within s.52(2)(b) of the Act no issue arises as to whether the court should exercise a discretion as to whether to dismiss the petition. The ground in the notice of opposition is not made out.
The petitioning creditor relied on the usual formal affidavits in relation to the requirements of s.52(1) of the Bankruptcy Act. In the notice of opposition the respondent had taken issue with several matters relevant to the evidence before the court in that respect. Further evidence was filed for the applicant addressing such issues. However those grounds are no longer pressed by the respondent. I am in any event satisfied on the evidence before the court from the creditor with proof of the matters stated in the petition, service of the petition, and with the fact that the debt on which the petitioning creditor relies is still owing. The date of the act of bankruptcy is 9 August 2011. No issue was taken by the debtor in that respect.
Being satisfied with proof of the matters in s.52(1) of the Bankruptcy Act the court may make a sequestration order against the estate of the debtor.
The respondent submitted that in the particular circumstances of this case the court should adjourn the hearing of the petition. It was submitted that notwithstanding proof of the matters in s.52(1) of the Act by the petitioning creditor and the creditor’s prima facia right to a sequestration order in such circumstances, the court could adjourn the hearing of the creditor’s petition on the basis that Mr Oberg will have funds available to pay his debts by virtue of the repayment of the asserted loan to the Peters Group in circumstances where the consequences for him of bankruptcy are of some significance.
Reliance was placed on the fact that if Mr Oberg became bankrupt this may affect his continued registration as a Registered Tax Agent (see Tax Agent Services Act 2009 (Cth) s.20.45), the fact that he has an accountancy practice which employs two people who have two dependents and that there are said to be some 100 (unidentified) creditors to whom the $50 million lent to the Peters Group through Mr Oberg would be owed. It was submitted that the court ought to take the effect of Mr Oberg’s bankruptcy on those people into account.
In the absence of evidence as to the precise nature of the loan transactions and the parties to such transactions, Mr Oberg’s generally expressed assertion that he believed that he borrowed a total of approximately $50 million from about 100 clients which was then invested through Mark Peters and that he believed his bankruptcy would make it harder to obtain such funds, is of limited weight in considering whether it would be appropriate to adjourn the hearing of the creditor’s petition.
I have had regard to the potential impact on Mr Oberg’s livelihood and business. He is an accountant and a tax agent. However there is authority to the effect that the fact that a debtor is a legal practitioner who might not be able to practice if bankrupt does not require the court to exercise its discretion not to make a sequestration order (see Deputy Commissioner of Taxation v McCormick (No 2) (2005) 218 ALR 665; (2005) FMCA 729 and Randall v Deputy Commissioner of Taxation [2008] FMCA 858). Similarly, the potential impact on Mr Oberg’s livelihood and possibly on his employees while relevant, is not determinative, either as to the exercise of the court’s discretion under s.52(2)(b) (indeed no such argument was put) or as to whether there should be an adjournment of the hearing of the petition. There is no evidence to distinguish this from any other case in which a small business employer faces bankruptcy.
I have considered all of the matters raised in connection with the application for an adjournment. Where an adjournment of the petition is sought when the creditor has satisfied the court of the requirements of s.52(1) of the Act the court must consider whether the adjournment is appropriate having regard not merely to the interests of the parties, but also the public interest. As stated by Madgwick J in Abignano; in the matter of Abigno v Wenkart [1999] FCA 1695 due weight must be given to the prima facie right of the petitioning creditor to obtain sequestration and to the importance of avoiding or minimising delay once bankruptcy proceedings have been instituted. Moreover, as Bromberg J discussed in Rotstein v Slaveski (2010) 8 ABC(NS) 200; [2010] FCA 493 at [17], the court should have regard to the policy objectives of the Bankruptcy Act including:
...the public interest in stopping individuals who are unable to meet their debts from continued insolvent training and assisting creditors who are unable to recover debts owed to them.
Such remarks are of particular relevance in the present circumstances. Furthermore, it has also been said (Bowen, Re; Ex Parte Debtor [1924] B and CR 32) that where a debtor seeks an adjournment of a petition the court should be put in possession of all possible information as to the position of the debtor and negotiations which will result in obtaining funds for the payment of his debts. In this case Mr Oberg has made frequent adjournment applications on the basis that funds will be shortly available from the Peters Group. This has not eventuated. He has not provided the court with a comprehensive explanation of the precise basis on which and terms on which the money was lent to the Peters Group or of the circumstances relating to the anticipated return of funds such as to satisfy me that it is in the interests of the administration of justice that there be an adjournment of the petition.
In the alternative, counsel for Mr Oberg sought that if the court was disposed to make a sequestration order it should delay the effect of the order. This submission was made on the basis of commentary on the decision of Re Wardle, ex parte Widin v Australia and New Zealand Banking Group Limited (1987) 70 ALR 633 in Nichols Annotated Bankruptcy Act 1966, LexisNexis, 2009, where reference was made to the effect that it may be possible to frame an order so as to cause a sequestration order not to be made until the expiry of the period of extension. Even if it were possible to suspend the operation of a sequestration order, for the reasons given in relation to the adjournment application, I am not persuaded that it would be appropriate to make such an order in the present case. In effect, what Mr Oberg seeks is to postpone his bankruptcy for 14 days, whether by adjournment or otherwise. I am not persuaded on the material before the court that when one has regard to the policy objectives of the Bankruptcy Act and to the evidence about Mr Oberg’s financial position, it is appropriate to make such an order.
Mr Oberg seeks that the court stay all proceedings under any sequestration order for a period not exceeding 21 days. Counsel for the applicant told the court that if the court was satisfied that such a stay was appropriate under s.52(3) of the Act then NAB would not oppose a 21 day stay. It was acknowledged that there would be no prejudice caused to the NAB were such a stay to be granted. On balance I am satisfied in the circumstances of this case and in the absence of opposition from the petitioning creditor that it is appropriate to stay proceedings under the sequestration order pursuant to s.52(3) of the Act.
In all the circumstances a sequestration order should be made against the estate of Colin Oberg, but an order will be made staying all proceedings under the sequestration order for a period of 21 days from the date of the order.

I certify that the preceding forty-three (43) paragraphs are a true copy of the reasons for judgment of Barnes FM

Date: 27 March 2012