Pacrim Trading Co Pty Ltd v Rafter
[2007] FMCA 181
•21 February 2007
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| PACRIM TRADING CO PTY LTD v RAFTER | [2007] FMCA 181 |
| BANKRUPTCY – Sequestration – Respondent’s failure to pay or make arrangements in respect of a debt within the statutory period provided for following service of a Bankruptcy Notice – other sufficient cause why a sequestration order ought not be made. |
| Bankruptcy Act 1966 Companies Act 1981 |
| Florance; ex parte Turimetta Properties Pty Ltd (1979) 36 FLR 256 Trojan v Corp Hindmarsh (1987) 16 FCR 37 |
| Applicant: | PACRIM TRADING CO PTY LTD ACN 065 899 176 |
| Respondent: | GREGORY JOHN RAFTER |
| File number: | BRG 905 of 2006 |
| Judgment of: | Burnett FM |
| Hearing date: | 14 February 2007 |
| Delivered at: | Brisbane |
| Delivered on: | 21 February 2007 |
REPRESENTATION
| Solicitors for the Applicant: | Rostron Carlyle Solicitors |
| Solicitors for the Respondent: | James Conomos Lawyers |
ORDERS
A sequestration order be made against the estate of Gregory John Rafter.
The Applicant’s costs of and incidental to the petition including reserved costs, if any, be taxed in accordance with the Federal Court Rules and paid from the estate of the Respondent in accordance with the Bankruptcy Act 1966.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT BRISBANE |
BRG 905 of 2006
| PACRIM TRADING CO PTY LTD ACN 065 899 176 |
Applicant
And
| GREGORY JOHN RAFTER |
Respondent
REASONS FOR JUDGMENT
Introduction
The Applicant petitioning creditor, Pacrim Trading Co Pty Ltd (the Applicant) applies for a sequestration order against Gregory John Rafter (the Respondent)in respect of the Respondent’s failure to pay or make arrangements in respect of a debt within the statutory period provided for following service of a Bankruptcy Notice on 3 October 2006.
Creditor’s Petition
The petition alleges the Respondent is a debtor in respect of an amount of $3,436.96 following a judgment entered by it against the Respondent at the Caboolture Magistrates Court on 15 August 2006. It further alleges that the Applicant as creditor does not hold a security over the property; that at the time of the commission of the act of bankruptcy the Respondent as debtor was personally resident in Australia; and the act of bankruptcy was committed by the Respondent as debtor within six months before the presentation of the petition. Those matters are sworn to by Trevor Muller the financial controller for the Applicant by his affidavit verifying the creditor’s petition sworn 21 November 2006. The currency of that information as at the date of hearing is affirmed by a further affidavit of Mr Muller sworn 13 February 2007 deposing to the fact that the amount of $3,436.96 remains wholly due and unsatisfied and further by an affidavit of Craig Michael Mason as to search deposing to the fact that there are no references in the index to the Respondent Gregory John Rafter other than the subject petition and that there was no debt agreement in relation to the debt on which the Applicant relies in the index on the day when the petition was presented. Mr Bull who appeared for the Respondent made no submissions challenging the Applicant’s creditor’s petition and its satisfaction of the requirements of section 52(1) of the Bankruptcy Act. Prima facie the Applicant is entitled to a sequestration order against the estate of the Respondent.
Section 52(2) considerations
Mr Bull for the Respondent however contends that the application should be dismissed on the basis that the Respondent is able to pay his debts or that there is other sufficient cause why a sequestration order ought not be made: Section 52(2).
The Respondent raises four grounds in his outline of argument in response to the Applicant’s creditor’s petition. They are:
a)the Respondent is able to pay his debts;
b)the Respondent is solvent;
c)as the Respondent is able to pay his debts, sufficient cause exists why a sequestration order ought not be made against the Respondent; and
d)the proceedings in bankruptcy are not an alternative means of enforcing a money judgment.
It is submitted that the grounds contended for are said to satisfy the requirements of section 52(2) and the Court should dismiss the petition.
Respondent is able to pay his debts
The grounds contended for in sub paragraphs (a), (b) and (c) of the Respondent’s outline in effect restate the matter provided for in s52(2)(a). I address them jointly.
The judgment sum, $3,436.96 is a relatively modest amount. It has been outstanding since some time before 28 June 2006. A copy of the judgment attached to the Bankruptcy Notice indicates that the initial claim was filed on 28 June 2006 with judgment entered on 15 August 2006. I note that the judgment was one entered as a default judgment which of itself indicates that the Respondent did not challenge his indebtedness. Nothing in his response to this Applicant suggests this position has changed.
In an affidavit filed by the Respondent on 14 December 2006 he deposed to the fact that he was a qualified panel beater who was then unemployed. Broadly his assets appear to comprise an interest in a real property situate at 10 Blamey Court, Morayfield (with interest he owns as a joint tenant with his wife, Robyn Lynette Rafter who he swears will permit her equity to be applied to the discharge of his debts); and a residual interest in a motor vehicle being a 1998 Nissan Patrol wagon registration number 574GOE.
A market appraisal provided by a real estate agent engaged in December 2006 for the purpose of selling the property at 10 Blamey Court provided an appraised value for the house of $300,000 to $320,000 by way of “advice as to market price”. At paragraph 6 of his affidavit the Respondent estimated the value of his surplus in the property at $53,797. That equity was premised upon assumptions as to the sale of the property for a value of $300,000 and an assumption that the value of the mortgage to Liberty noted at $237,253 remains static. It should be noted that by reference to the statement of account annexed to his affidavit the closing balance for the Liberty mortgage as at 26 June 2006 (i.e. six months prior to the affidavit) was $237,253. In other words the affidavit was premised upon an assumption that between 26 June 2006 and the date of the affidavit the Respondent at least maintained interest payments in respect of that debt.
It was contended by Mr Mason for the Creditor that the assumptions were flawed because the Respondent’s estimate of the property’s value was ambitious and further because the Respondent had not made any contributions to the mortgage since June 2006 and accordingly the payout figure was significantly higher than the balance identified in the statement.
In a subsequent affidavit filed by the Respondent on 15 January 2007 he deposed to having engaged R & M Property Advisory Independent Valuation Services to prepare a valuation of the property. That valuation (exhibit GJR1 to the affidavit) valued the property at approximately $280,000. That valuation prepared by R & M Property Advisory Independent Valuation Services was one under the hand of Malcolm Malone who is a certified practising valuer, registration number 2402. Although his curriculum vitae is not attached to his valuation I accept that by reference to his registration number and his description as a certified practising valuer he is duly qualified to express the opinion contained in his valuation report.
In submissions made by Mr Bull on behalf of the Respondent at the hearing I apprehend that the Respondent is not happy with the valuation evidence and contends in accordance with his affidavit filed 13 February 2007 that the value of the property is closer to that which is provided for in the appraisals by various real estate agents namely a value in the range of $300,000 to $310,000. The matter has not been tested but in any event it relies upon the expression of an opinion reported in a hearsay manner by the Respondent.
Section 79 of the Evidence Act provides for the acceptance of certain opinion evidence. Section 79 provides that if a person has specialised knowledge based on the person’s training study or experience the opinion rule does not apply to evidence of an opinion of that person that is wholly or substantially based on that knowledge. Whilst Mr Malone has not attached his curriculum vitae to his valuation report I accept his description as a “certified practising valuer registration number 2402” together with the post nominals “AAPI” to constitute a representation that he has undertaken a course of study and met the requisite requirements for admission to The Australian Valuers Institute. As his expression of opinion relates to matters relevant to those qualifications I accept his opinion is not subject to the opinion rule.
The same cannot be said for the expression of opinions, in any event related in a hearsay manner, by various real estate agents when expressing market appraisals. I do not accept a market appraisal carries the same force as an opinion expressed by a qualified valuer and accept that the true value of the property is $280,000. I accept Mr Mason’s submissions in that regard.
Concerning the level of debt; Mr Bull informed the Court at the hearing that no further payments had been made in respect of the mortgage since 26 June 2006. As can be seen by reference to the mortgage statement the monthly payment approximates at $2,000 per month. It follows that between 26 June 2006 and the present a further eight months have elapsed without any reduction in the mortgage account. Putting aside the issue of whether the default interest be calculated on a compound or simple interest basis it would seem that in any event no less than approximately $16,000 has been further added to the mortgage liability. In summary, it appears, as was submitted by Mr Mason and which submission I accept that the total equity in the house is approximately $18,500 made up as follows:
Property value
$280,000
Allowance for commission[1]
$7,950
Legal fees
$1,000
Mortgage to Liberty
$253,000
$261,950
$18,050[1] Clearly with a lower sale price the commission will be less although not significantly so.
Total liabilities acknowledged by the Respondent in his affidavit of 14 December 2006 include:
Debt to Applicant creditor
$3,436.96
AP Ford Pty Ltd
$1,558.53
ABI Paint Supplies
$800
ANZ Bank
$6,433.24
Judgment – Uniting Church of Australia Property Trust
$3,621.84
The total of those creditors is $15,850.57.
In addition to the above nominated assets and liabilities there is also a debt in respect of a lease with Circuit Finance Australia Limited for a 1998 Nissan Patrol wagon. In his affidavit the Respondent says the payout on the lease for that vehicle as at December 2006 was approximately $18,000. There is no evidence before me concerning the value of the motor vehicle. For reasons which follow, even giving the Respondent the benefit of the doubt and accepting that the value of the vehicle broadly equates with the debt outstanding under the lease, the Respondent’s position is not positively advanced.
Adopting that beneficial view in respect of the motor vehicle the overall nett equity position for the Respondent is approximately $2,199.43. That sum is made up of nett equity in property less the value of creditors.
The Respondent’s submission, premised upon an assumption the property will sell for $300,000 estimates that there would be a surplus of assets over debts of approximately $18,000. In that regard the Respondent’s submissions are also premised upon the outdated payment figure on the mortgage. Upon that basis it is submitted on the Respondent’s behalf that there are sufficient assets for the Respondent to pay his debts. In his submissions the Respondent correctly acknowledged that the onus was upon him to satisfy the Court of his ability to pay his debts or that there is some other sufficient cause why a sequestration order should not be made: Trojan v Corp Hindmarsh[2].
[2] 1987 16 FCR 37, 48.
The Respondent also acknowledged in his submissions that it was not enough merely to show that the debtor’s assets exceeded his liabilities as that matter alone would not satisfy the Court that the debtor is able to pay his debts as and when they fall due; re Lakatos: ex parte Lakatos v Deputy Commissioner of Taxation[3].
[3] 1996 33 ATR 145
The widely accepted test of a person’s ability to pay his/her debts as and when they become due was stated by Barwick CJ in Sandell v Porter[4] His Honour stated[5]:
“- - insolvency is expressed … as an inability to pay debts as they fall due out of the debtor’s own money. But the debtor’s own monies are not limited to his cash resources immediately available. They extend to monies which he can procure by realisation, by sale or by mortgage or pledge of his assets within a relatively short time – relative to the nature and amount of the debts and to the circumstances, including the nature of the business, of the debtor. The conclusion of insolvency ought to be clear from a consideration of the debtor’s financial position in its entirety and generally speaking ought not to be drawn simply from evidence of a temporary lack of liquidity. It is the debtor’s inability, utilising such cash resources as he has or can command through the use of his assets, to meet his debts as they fall due which indicates insolvency.” (emphasis mine)
[4] 1966 115 CLR 666
[5] at 670.
Likewise Giles JA in Lewis (as liquidator of Doran Constructions Pty Ltd) & other v Doran & Ors[6] noted:
“- - insolvency is, first and last, a question of fact “to be ascertained from a consideration of the company’s financial position taken as a whole. In considering the company’s financial position as a whole, the Court must have regard to commercial reality. Commercial realities will be relevant in considering what resources are available to the company to meet it’s liabilities as they fall due, whether resources other than case are realisable by sale or borrowing on security and whether such realisations are achievable.”[7]
[6] [2005] NSW CA 243
[7] At paragraph 80
In the instant case, from the time of the bringing of the application through until the time of the hearing of the application it is apparent that the Respondent’s nett asset position has deteriorated and shows little prospect of improvement. This is in my view apparent by reason of the following. The Respondent has an unduly optimistic view of his nett asset position. The evidence is clear that the property has a value of $280,000. Despite that matter the Respondent optimistically submits that the views of real estate agents and their appraisals should be preferred. The property has been on the market since mid December 2006 and although there have been a handful of inspections of the property there is no evidence of any offers forthcoming. Clearly the market does not agree with the agent’s appraisal. Further, since June 2006 the Respondent has not made any payments in discharge of his obligations under his mortgage. It appears that throughout some of this time the Respondent has been unemployed. In his affidavit filed 14 December 2006 he noted he was “presently unemployed”. In his affidavit filed 13 February 2007 he continued to describe himself as “presently unemployed”. I note he has been unsuccessfully attempting to obtain employment between the filing of those two affidavits.
It was also submitted by the Applicant that it is legitimate for the Court to take into account the intended sale of a property as capable of producing money within a relatively short time. Re Newark Pty Ltd (In Liq) [1993], Qd. R 409 at 415.
In response to that submission the Applicant contended the facts in Re Newark were distinguishable and accordingly the case was no authority for the proposition advanced.
A review of the judgments of both Thomas J and Derrington J with which judgment Moynihan J concurred partially supports the Application’s contention; see p 416 and 421. However nothing in the case departs from the principal requirement for a Court to weight such a matter in the mix of issues to be considered.
I do accept however that unlike Re Newark, the Respondent has neither a contract on the property or significant equity in it. They are both relevant considerations in this proceeding.
It follows that even if the Respondent were able to immediately secure a purchaser for his house property it seems unlikely that upon the realisation of that property he would receive sufficient funds to discharge all his debts[8]. He has no source of income beyond the income provided to the household by his wife who is employed as a dressmaker (there was no direct evidence as to the quantum thereof) and social security benefits premised upon his being unemployed. It is obvious that he has limited cash resources immediately available to him to attend to those debts which might remain outstanding after the application of limited equity (if any) in his house to all other outstanding debts. Particularly given the Respondent’s inability to pay his mortgage payments over a period of eight months it is clear that the Respondent’s position is not one of a “temporary lack of liquidity”. Although I accept that the petitioning creditor’s debt is relatively small, it is not small having regard to the Respondent’s net assets. In my view it is clear the Respondent is unable to pay his debts.
[8] In reaching this view I have assumed any contract would be a standard 30 day contract and in the interim no further payments were made in respect of the mortgage.
Other sufficient cause
The other basis upon which the discretion is called to be exercised is that there is “other sufficient cause” why a sequestration order ought not to be made. The Respondent contends that proceedings in bankruptcy are not an alternative means of enforcing a money judgment convenient thought they may be for putting pressure on a reluctant but solvent debtor to pay[9].
[9] Respondent’s submissions at paragraph 18.
It is accepted that an application may proceed despite there being other means of enforcement available provided the application is not one whereby the debtor has been subject to extortion or pressure in order for the Applicant to afford some secret advantage over other creditors; Rozenbes v Kronhill[10]; re Lissek[11].
[10] 1956 95 CLR 407.
[11] 1967 10 FLR 487, 492-493.
The classic statement concerning “other sufficient cause” was adopted by the High Court in Cain v Whyte[12] where the court approved a statement by Henchman J:
…That prima facie, on proof of the matters mentioned in section [52(1)], the Court will proceed to make an order for sequestration, and it is for the debtor to show some cause overriding the interest of the public in stopping of unremunerative trading, and the rights of individual creditors who are unable to get their debts paid to them as they become due. Something has to be put before the Court to outweigh those considerations before it can be said that sufficient cause is shown against the making of a sequestration order.”
[12] (1933) 48 CLR 639.
Concerning the final in sentence in Cain v Whyte, quoted above Burchett J in Re Svir; Ex Parte Commissioner of Taxation[13] noted”
“This exposition of the law emphasises the width of the discretion conferred by the 1966 Act upon the Court. At the same time it points to a fundamental limitation imposed by the nature of the jurisdiction in bankruptcy, which requires the court to keep in mind, not only the interests of the individual parties before it in the particular case, but also the public interest, which may be adversely affected by the propping up of insolvency.”
[13] at p 317.
His Honour continued to note that even in the absence of a significant number of creditors diminishing the significance of the public interest component for consideration ‘that merely removes a bar’; it does not provide a positive ground constituting ‘other sufficient cause’ why a sequestration order ought not be made.
In this case whilst the number of creditors pursuing the Respondent are minimal, they are significant when considered against his overall position. In that regard the Respondent’s position is in stark contrast to the position in Re Svir where the respondent had only one creditor and the prospect of a significant personal injury claim payment which he agreed to apply in the discharge of his indebtedness.
The other sufficient cause contended for was the prospect of the Applicant enforcing his judgment by other means. Whilst in some circumstances it may be sufficient cause for dismissing the petition to demonstrate the petitioning creditor has other equally good facilities available for enforcing his or her judgment it is for the Court as a matter in its discretion to decide whether or not other sufficient cause has been established; re Noye; Ex parte Deputy Federal Commissioner of Taxation[14].
[14] (1956) 18 ABC 77.
In this case the prospect of other enforcement action is contended for by the Respondent. In my view the contention whilst not fanciful is not realistic. The only assets which could be secured by the Applicant as a judgment creditor would be the house or the motor vehicle. Both assets are already subject to security, the house being secured by the mortgage to the first mortgage and the motor vehicle being the subject of a lease agreement. Putting aside questions of equity in the respective assets any such approach by the Applicant would require consideration of the interests of third parties whose interests would have priority over those of the Applicant. By reason of their interests there is little if any equity in assets available even if enforcement was to be proffered.
In my view the Respondent has not demonstrated that there is other sufficient cause that a sequestration order not be made.
Conclusion
In the circumstances I am satisfied that the requirements of section 52(1) for the making of a sequestration order against the estate of the Respondent have been established by the Applicant. I am not satisfied that the Respondent at the time of the application or now is able to pay his debts. Further I am not satisfied that the Respondent has demonstrated any other sufficient cause as to why a sequestration order ought not be made.
I allow the application.
I certify that the preceding thirty-nine (39) paragraphs are a true copy of the reasons for judgment of Burnett FM
Associate: Bev Schmidt
Date: 21 February 2007
0
1
0