Owners Corporation Strata Plan 62734 v O'CONNELL - [2011] FMCA 424

FEDERAL MAGISTRATES COURT OF AUSTRALIA

OWNERS CORPORATION STRATA PLAN 62734 v O'CONNELL

[2011] FMCA 424

BANKRUPTCY – Contested creditors petition – whether existence of an earlier petition is a reason for the Court not to make a sequestration order on the later petition considered – whether the debtor is solvent or should be given further time to discharge his debts considered.

Bankruptcy Act 1966, s.52
Federal Magistrates Court (Bankruptcy) Rules 2006 (Cth)

Applicant:

OWNERS CORPORATION STRATA PLAN 62734

Respondent:

FRANCIS XAVIOUR O'CONNELL

File Number:

SYG 2508 of 2010

Judgment of:

Driver FM

Hearing date:

20 May 2011

Delivered at:

Sydney

Delivered on:

20 May 2011

REPRESENTATION

Counsel for the Applicant:

Mr M Pesman

Solicitors for the Applicant:

John Carmody & Co

Solicitors for the Respondent:

Mr C Reid
Reid Legal

Counsel for the Supporting Creditor:

Mr Aqualina

Solicitors for the Supporting Creditor:

SR Law

ORDERS

The Court notes that there are two petitions before the Court in SYG2044 of 2010, a petition filed on 16 September 2010 and in SYG2508 of 2010, a petition filed on 18 November 2010.
The Court notes that in SYG2044 of 2010 the petition, although filed earlier in time, was served later in time and is not presently supported by final affidavits of search and debt.
A sequestration order be made against the estate of Francis Xaviour O’Connell.
The applicant creditor’s costs, including reserved costs, if any, be paid in accordance with the Bankruptcy Act 1966 (Cth), fixed in the sum of $10,000.
The Court notes that a Consent to Act as Trustee has been signed by Geoffrey David McDonald on 16 March 2011.
The Court further notes that the date of the act of bankruptcy is 4 November 2010.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA
AT SYDNEY

SYG 2508 of 2010

OWNERS CORPORATION STRATA PLAN 62734

Applicant

And

FRANCIS XAVIER O'CONNELL

Respondent

REASONS FOR JUDGMENT

(revised from transcript)

I have before me a creditor’s petition filed on 18 November 2010 seeking a sequestration order against the estate of Francis Xaviour O’Connell. The petition is supported by the affidavits verifying its contents as well as affidavits of service of documents required to be served pursuant to the Federal Magistrates Court (Bankruptcy) Rules 2006 (Cth) and final affidavits of search and debt. The affidavit of search confirms the existence of another creditor’s petition filed on 16 September 2010 against the same debtor, albeit that there appears to have been some confusion as to the spelling of his middle name Xavier.
That name has been variously spelled X-a-v-i-o-u-r and X-a-v-i-e-r. The latter, while the more common spelling, appears to be incorrect and exhibit A1 indicates that the correct spelling is X-a-v-i-o-u-r. The difference in spelling has been advanced as and probably is the reason for the existence of two creditors petitions.
The petition before me was pressed by the petitioning creditor with the support of the creditor in the other matter, SYG2044 of 2010. The supporting creditor’s petition, while filed some two months earlier, than the petition immediately before me was served at least three months later in time. The petition in matter SYG2508 of 2010 is, I am satisfied, ready to be dealt with today, having regard to the evidence supporting it. The petition in matter SYG2044 of 2010 is not ready to be dealt with today, not least because of the absence of final affidavits of search and debt.
I am satisfied, having regard to the petition and the evidence filed in support of it, that the formal requirements for the making of a sequestration order have been met. There is, however, a notice of grounds of opposition which must be dealt with. That notice was filed on 13 May 2011:
1. The Respondent has reached an agreement for the lease and sale of the property in respect of which the Applicant’s claim arises (as evidenced by the Affidavit of the Respondent sworn and filed on 29 April 2011).
2. The Applicant’s refusal to agree to an adjournment of the petition for 6 months in order to allow the sale of the property to settle and to receive payment of its debt from the settlement proceeds is unreasonable and unconscionable in circumstances where:
(a) the Respondent has already made a part payment of the debt in the amount of $15,000 (as evidenced in the Bankruptcy Notice dated 10 September 2010);
(b) the Applicant has the benefit of a form of security for payment of the balance of the debt in that the purchaser of the property becomes jointly and severally liable with the Respondent for the payment of the contribution and interest on the contribution upon the settlement of the sale (section 78(3) Strata Schemes Management Act 1996, NSW).
The notice is supported by two affidavits by the debtor. In short, the debtor deposes that he is in the course of making arrangements for the leasing of the property the subject of strata fees, being the debt supporting the creditor’s petition and that a lease is expected to be arranged shortly. The debtor anticipates that once a lease is effected he will be able to sell the property. I am told the property is subject to a mortgage.
In the course of argument on the notice of objection I confirmed that three matters are advanced in opposition to the making of a sequestration order today. The first is the question of solvency. The Court should not make a sequestration order against a debtor who is solvent. The second is the question of whether the petition should be adjourned to enable the debtor to complete or make further progress in arrangements to lease and sell the property. The third is whether the existence of the other petition filed earlier in time should be taken to be another reason for the Court to refrain from making a sequestration order.
I am not satisfied on the material before me that the debtor is solvent. The evidence establishes efforts not yet complete to lease the property and the possibility of a sale. However, I do not know what the debtor’s equity in the property is and I do not know whether the debtor has any capacity to borrow against that equity or, indeed, if the property is sold whether sufficient funds ought flow to the debtor to enable him to discharge his debt. The existence of a substantial liability in respect of unpaid strata fees could well be an impediment to a sale given that the strata fees, if left unpaid at the time of sale, may be a liability bearing upon the purchaser.
The test of solvency is whether the debtor can pay his debts as and when they fall due or within a reasonable time. The debtor’s evidence establishes at best that in a period of approximately six months there is the possibility of a sale which might, hypothetically, realise sufficient funds to satisfy his debts. That does not persuade me that the debtor has a capacity to meet his liabilities within a reasonable time.
I have considered whether the Court should grant an adjournment to permit the debtor to take further steps to lease and sell the property as he intends. The circumstances are that the petition in SYG2508 of 2010 has been before the Court since 18 November 2010 and was served in February pursuant to an order for substituted service. The matter has been before the Court on a number of time before a registrar and several adjournments have been granted. It is true that if the petition in SYG2508 of 2010 were not dealt with by the Court the petition in SYG2044 of 2010 could not be dealt with by the Court today and probably could not be dealt with for several weeks. The debtor seeks any reasonable opportunity in order to seek to deal with his affairs.
I am concerned, however, that there should not be unnecessary delay in bankruptcy proceedings and I am not persuaded that further delay in these proceedings would advance either the cause of the debtor or the interests of creditors.
Section 52(2) of the Bankruptcy Act 1966 (Cth) (“the Bankruptcy Act”) permits the Court to refrain from making a sequestration order for another reason. Hypothetically, the existence of a competing petition might be a sufficient reason for the Court to refrain from making a sequestration order. For example, a petition earlier in time impacts upon the relation-back period. In this matter there is no evidence that there would be a detriment to creditors as a consequence of the Court dealing with the petition filed later in time.
I am satisfied that there has been no abuse of process and that the second petition was filed in ignorance of the first because of the difference in spelling in the debtor’s name. I am satisfied that the existence of the earlier petition is not a reason for the Court to refrain from making a sequestration order. I have found no authority bearing on the point and in my view the question falls within the general discretion of the Court. In all the circumstances, I have concluded that the orders sought in the petition in matter SYG2508 of 2010 should be granted.
I am satisfied that the debtor committed the act of bankruptcy alleged in the petition. I am satisfied with proof of the other matters of which s.52(1) of the Bankruptcy Act requires proof and I am further satisfied that the debtor has not advanced any reason for the Court not to make a sequestration order. I make a sequestration order against the estate of Francis Xaviour O’Connell.
The Court notes that a consent to act as trustee was signed by Geoffrey David McDonald on 16 March 2011 and that the consent has been lodged with the Insolvency and Trustee Service Australia. I further note that the date of the act of bankruptcy is 4 November 2010.
I will order that the applicant creditor’s costs, including reserved costs if any, be paid in accordance with the Bankruptcy Act fixed in the sum of $10,000.
A consequence of the orders I have made is that the petition in SYG2044 of 2010 must be dismissed and I so order.
I will make an order for costs in favour of the petitioning creditor in that matter, fixed in the amount of $2,000.

I certify that the preceding seventeen (17) paragraphs are a true copy of the reasons for judgment of Driver FM

Date: 7 June 2011