Parkes, Damien v ADC Properties Pty Ltd
[1995] FCA 1004
•1 DECEMBER 1995
CATCHWORDS
Bankruptcy - whether sequestration order should be made - default judgment obtained in the District Court set aside by consent - debtor subsequently given leave to defend - substantial basis on which the existence of the debt was disputed - any genuine dispute as to liability of the debtor should be investigated before he or she is made bankrupt - bankruptcy is not mere inter partes litigation - quasi‑penal consequences - involves a change of status - a sequestration application should be adjourned or stayed pending as appeal against a judgment giving rise to a judgment debt on which a petitioning creditor relies - no sequestration order made.
Bankruptcy - substituted creditor - applicant for an order for substitution as petitioning creditor need only claim the existence of a debt and need not establish it.
Bankruptcy - application for sequestration order - whether debt exists - amount alleged to be a debt pursuant to settlement of proceedings - settlement uncertain -correspondence failed to constitute an agreement - evidence not sufficient for the purposes of s 52 of the Act - no sequestration order made - inappropriate to simply dismiss the petition - petition adjourned with liberty to apply.
Bankruptcy Act 1966 s 31A(9), s 49, s 52.
Hyams v Elder Smith Goldsbrough Mort Limited (1976) 133 CLR 637 applied.
Dean v Q.U.F. Industries Ltd (1981) 51 FLR 317 applied.
Re Basile; Ex parte Ancich (1979) 37 FLR 501 applied.
Ahern v Deputy Commissioner of Taxation (Qld) (1987) 76 ALR 137 at 148 applied.
Evans v Heather Thiedeke Group Pty Ltd (1990) 95 ALR 424 applied.
Adamopoulos v Olympic Airways SA (1990) 95 ALR 525 at 532 applied.
DAMIEN PARKES v ADC PROPERTIES PTY LIMITED AND ANOR.
NP 806 of 1995
CORAM:Lehane J
PLACE:Sydney
DATE: 1 December 1995
IN THE FEDERAL COURT OF AUSTRALIA )
GENERAL DIVISION )
BANKRUPTCY DISTRICT OF NEW SOUTH WALES ) No NP806 of 1995
RE:DAMIEN PARKES
Debtor
EX PARTE:ADC PROPERTIES PTY LIMITED
Petitioning Creditor
ESANDA FINANCE CORPORATION LIMITED
(ACN 004 346 043)
Substituted Creditor
CORAM:Lehane J
PLACE:Sydney
DATE:1 December 1995
MINUTE OF ORDERS
THE COURT ORDERS:
THAT the petition for sequestration be adjourned to a date to be fixed.
THAT the parties to the proceedings by way of petition may apply to restore the petition to the list upon reasonable notice.
NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA )
GENERAL DIVISION )
BANKRUPTCY DISTRICT OF NEW SOUTH WALES ) No NP806 of 1995
RE:DAMIEN PARKES
Debtor
EX PARTE:ADC PROPERTIES PTY LIMITED
Petitioning Creditor
ESANDA FINANCE CORPORATION LIMITED
(ACN 004 346 043)
Substituted Creditor
CORAM:Lehane J
PLACE: Sydney
DATE:1 December 1995
REASONS FOR JUDGMENT
Lehane J: A creditor's petition against the Debtor, Damien Parkes, was referred to the Court under s 31A(9) of the Bankruptcy Act 1966 (the Act).
The history of the matter may be briefly traced. A bankruptcy notice was served on the Debtor on 20 March 1995. It required payment to A.D.C. Properties Pty Limited (ADC) of a sum of $6,777.62, together with interest, due under a final judgment obtained by ADC against the Debtor in the Local Court at Fairfield. The Debtor did not comply with the demand and ADC presented a creditor's petition which was served on the Debtor on 18 April 1995. On 31 July 1995 Esanda Finance Corporation Ltd (the Substituted Creditor) was substituted as petitioning creditor under s 49 of the Act and directions were made for the filing and service of affidavits.
On 31 July 1995, also, the Debtor filed a notice of intention to appear at the hearing of the petition and grounds of opposition.
The affidavit in support of the application for substitution claimed that the Debtor, as at 3 April 1995 (the date on which the act of bankruptcy constituted by failure to comply with the bankruptcy notice occurred), owed the Substituted Creditor the sum of $210,867.14. It is clear that an applicant for an order for substitution as petitioning creditor need only claim the existence of a debt and need not, at that stage, establish it: Hyams v Elder Smith Goldsbrough Mort Limited (1976) 133 CLR 637; Dean v Q.U.F. Industries Ltd (1981) 51 FLR 317. In fact the Substituted Creditor had obtained a default judgment for $210,867.14 in the District Court; that judgment had been entered on 7 February 1995 and, at the time when the application for substitution was made, remained unsatisfied.
The Debtor subsequently applied to the District Court to set aside the default judgment; it is common ground (though there is no evidence of these matters before me) that the application was heard on 12 October 1995 and the judgment was, by consent, set aside. Again, I am told, and it seems to be common ground, that orders were made by the District Court for the filing and service of a defence and of affidavits. I was told by the Substituted Creditor, and the Debtor did not dispute, that the Substituted Creditor complied with the directions applicable to it; the Debtor had not complied with its own obligations to file a defence and affidavits until the morning of the day on which the petition came on for hearing before me; counsel for the
Debtor informed me that a defence and affidavits had been filed in the District Court that morning.
When the matter came on for hearing before me, counsel for the Substituted Creditor submitted that the matters of which proof is required by s 52 of the Act had been satisfactorily proved and that I should make a sequestration order against the estate of the Debtor. He relied on an affidavit sworn on 24 October 1995 by Steve Mitchell, a Senior Credit Control Manager of the Substituted Creditor, to the effect that the Debtor was indebted to the Substituted Creditor in the sum of $206,827.78. The affidavit gives particulars as to the way in which the various components of the debt arose and the basis on which they are claimed to be due. Counsel relied also on an affidavit sworn on the date of the hearing by another Senior Credit Control Manager of the Substituted Creditor, stating that the Debtor remained indebted to the Substituted Creditor, at the time that affidavit was sworn, in the sum of $206,827.78. Counsel also filed in Court an affidavit of search.
The Debtor had filed no evidence in response to the substantial affidavit filed on behalf of the Substituted Creditor, or as to solvency. He had, however, filed an affidavit sworn on 28 August 1995 annexing copies of the documents which he had filed in the District Court in support of his application to set aside the default judgment in favour of the Substituted Creditor, including a draft notice of grounds of defence. Counsel for the Debtor submitted that the requirements of s 52 had not been sufficiently proved, or at least that on the evidence as it stood it would not be appropriate for the Court, in the exercise of its discretion, to proceed to make a sequestration order. At the commencement of argument, counsel for the Debtor said that he did not propose to file further evidence and he did not do so. Towards the close of argument, he sought an adjournment to enable him to file further evidence. I did not think it appropriate to grant an adjournment at that stage of the proceedings and, for reasons I then gave, I refused that application.
It is necessary for me, therefore, to decide whether, on the evidence as it stands, I should make a sequestration order. That, in turn, requires consideration of the evidence in support of the debt claimed by the Substituted Creditor.
It was not suggested that I should not accept the evidence of Mr Mitchell in his affidavit as to the way in which the debt is made up. Broadly, the debt is claimed to arise, as to $204,827.78, under guarantees given by the Debtor of the obligations of a company called Cresville Pty Limited (Cresville) under a series of agreements by which the Substituted Creditor leased goods to Cresville. As to the balance of $2,000, the debt is said to arise under the terms of a compromise between the Debtor and the Substituted Creditor of a liability of the Debtor under a guarantee and indemnity given by him of the obligations of a company called Seadam Pty Limited under a lease of certain goods; I shall return to that transaction later in these reasons.
It was common ground that the liability under the guarantee of Cresville's obligations was the liability for which the default judgment in the District Court had been obtained. The discrepancy between the amount of the judgment ($210,867.14) and the amount said now to be due under the Cresville transactions ($204,827.78) was not explained and probably does not matter. What does matter is that, first, I have before me evidence that the claim exists and of the circumstances giving rise to it; secondly, a default judgment had been obtained in the District Court in respect of it; and, thirdly, the default judgment had been set aside and the Debtor given leave to defend. Additionally, I have been told (though there is no admissible evidence before me of this) that the Debtor has, belatedly, filed in the District Court a defence and affidavits.
Counsel for the Substituted Creditor submitted that on the state of the evidence before me of the Cresville transactions I should make a sequestration order. He submitted - correctly - that although a judgment is a necessary foundation of a bankruptcy notice, and consequently of an act of bankruptcy constituted by failure to comply with a bankruptcy notice, it is not necessary that a petitioning creditor have, at the time when the Court comes to consider whether it should exercise its power under s 52, a claim under a judgment: all that is necessary is that it establish, by admissible evidence, the existence of a debt owed to it by the Debtor of an amount exceeding the statutory minimum. Counsel then submitted that the uncontradicted evidence in these proceedings - that contained in the affidavit of Mr Mitchell and in the further affidavit to the effect that on 14 November the debt claimed remained outstanding - established the existence of a debt owed by the Debtor to the Substituted Creditor of an amount well in excess of the statutory minimum. The submission proceeded that,
the other requirements of s 52 being satisfied, there was no reason why a sequestration order should not be made and I should make such an order.
The Debtor contended that that submission involved a "quantum leap". By that he meant, I think, that it is one thing to say that it is unnecessary for a petitioning creditor to have a judgment in order to establish the existence or amount of the debt which it claims; it is quite another to say that, where a petitioning creditor had a judgment for the debt claimed but the judgment has been set aside and the debtor has been let in to defend in circumstances where he claims to have a seriously arguable defence or counter claim, the Court should nevertheless regard the debt as sufficiently established to justify the making of a sequestration order. In this case the grounds of opposition, elaborated in the documents filed in the District Court copies of which are annexed to the Debtor's affidavit of 28 August 1995, indicated the possibility of a substantial basis on which the existence of the debt was indeed disputed.
On this part of the case the Debtor is, in my view, entitled to succeed. There is, first, a decision of the Full Court of this Court in Re Basile; Ex parte Ancich (1979) 37 FLR 501 which seems to me almost precisely in point. The Full Court had before it an appeal from a judgment by which a sequestration order had been made. At the time the order was made the petitioning creditor had a default judgment of the District Court and had also the benefit of an admission by the debtor that he owed $1,925.85 to the petitioning creditor. There was evidence that instructions had been
given to institute proceedings to set aside the default judgment. The trial judge refused an adjournment sought by the debtor and made a sequestration order. Evidence was given on the appeal that the default judgment had been set aside on condition, among other things, that the sum of $2,500 be paid into Court. That payment had been made. In those circumstances, the Full Court, by majority, held that the sequestration order should be set aside. The simple basis of that conclusion was that an amount exceeding the sum admittedly due had been paid into Court and there was a genuine dispute, awaiting hearing in the District Court, as to the balance of the alleged debt. Certainly it is true that the Chief Justice thought it relevant in that case that no other person claiming to be a creditor of the debtor appeared to support the making of a sequestration order (another creditor did appear in support in this case), but I do not think I can regard that by itself as having particular significance. It is true also that the Chief Justice regarded that as a case in which "the balance tips in favour of" the petitioning creditor. Apart from the absence in that case of a supporting creditor, however, there is nothing in the report or in the material before me which suggests any relevant distinction, for the purpose of ascertaining the direction in which that balance tips, between that case and this.
Secondly, there is a series of cases dealing with the question whether an application for a sequestration order should be adjourned, or proceedings under a sequestration order stayed, pending an appeal against a judgment giving rise to the judgment debt on which a petitioning creditor relies: see particularly Ahern v Deputy Commissioner
of Taxation (Qld) (1987) 76 ALR 137; Evans v Heather Thiedeke Group Pty Ltd (1990) 95 ALR 424; Adamopoulos v Olympic Airways SA (1990) 95 ALR 525.
In Ahern, at 148, the Full Court referred to
... the broad principle that before a person can be made bankrupt the court must be satisfied that the debt on which the petitioning creditor relies is due by the debtor and that if any genuine dispute exists as to the liability of the debtor to the petitioning creditor it ought to be investigated before he is made bankrupt.
The Full Court continued:
Bankruptcy is not mere inter partes litigation. It involves a change of status and has quasi‑penal consequences.
In Adamopoulos, the Full Court again held that, pending an appeal against the judgment relied on by the petitioning creditor, proceedings for a sequestration order should be adjourned. The Full Court said (at 532):
As was emphasised in Ahern, bankruptcy is more than the enforcement of a judgment: it adversely changes status and subjects the bankrupt to potential criminal liabilities. The Court must be satisfied, when making an order of such gravity, that its foundation is secure.
Applying those principles, I think it is clear that I should not make a sequestration order based on the claim against the Debtor arising out of the Cresville transactions.
The Substituted Creditor submitted that, even if I came to that conclusion, I ought nevertheless to make a sequestration order relying on the debt said to arise out of the transaction involving Seadam Pty Limited. The Substituted Creditor claims that the Debtor owes it $2,000 on that account and no evidence to the contrary has been given by the Debtor. The Debtor did, however, argue that I should not regard the evidence as to that transaction as sufficiently establishing the claim to justify the making of a sequestration order. Accordingly, I must examine the evidence concerning the transaction.
The relevant evidence is to be found in paragraphs 83 to 89 inclusive of Mr Mitchell's affidavit and the annexures referred to in those paragraphs. The effect of Mr Mitchell's evidence is that there was a lease between the Substituted Creditor and Seadam Pty Limited; the Debtor guaranteed the obligations of Seadam Pty Limited under that lease and, following a default under the lease, proceedings had been taken in the Local Court against both Seadam Pty Limited and the Debtor. There is no evidence that those proceedings resulted in a judgment. Mr Mitchell's evidence is, however, that there was an agreement reached in settlement of the proceedings under which the Debtor was to pay the Substituted Creditor the sum of $3,600 in full settlement and that $1,600 was paid on 26 March 1995, leaving a balance of $2,000 unpaid.
There are, however, some discrepancies which must be taken into account in considering whether I ought to be satisfied that the Debtor in fact owes the Substituted Creditor the sum of $2,000. First, although Mr Mitchell refers in his affidavit to a lease between the Substituted Creditor and Seadam Pty Limited, the document said to be a copy of that lease is in fact a lease agreement between Finance Corporation of Australia Limited and Seadam Pty Limited. It may be that there has been a novation or assignment of that agreement, but if so there is no evidence of it. Secondly, the correspondence (two letters, copies of which are annexed to Mr Mitchell's affidavit) said to be that "constituting the agreement" to settle the Local Court proceedings in fact appears to constitute no agreement at all. The correspondence comprises a letter from the Debtor to "Esanda Recovery" dated 28 February 1991 and a letter to the Debtor from the Substituted Creditor. The former makes the following offer:
On looking at my capacities, I would like to pay a sum of approximately $3,500 in full and final settlement as I do not feel that the entire interest is payable in light of other representations made to me ... I offer this in two payments, one on your acceptance (and notification of how that amount should be deposited), and the second payment, one calendar month thereafter.
The reply simply says this:
On February 28, 1991 we agreed to accept $3,600 from you as a full and final settlement of this account on the following basis:-
$1,800.00 by March 8, 1991
$1,800.00 by mid April, 1991
We received $1,600.00 on March 26, 1991 and now look forward to your further remittance of $2,000.00 by April 19, 1991 to resolve the matter.
It is plain that that correspondence by itself does not by itself by any means establish a complete meeting of minds between the parties. It may well be that the Debtor does indeed owe the Substituted Creditor $2,000.00 but I do not think the evidence is sufficient to satisfy me of that for the purposes of s 52.
It follows, I believe, that I ought not make a sequestration order. Equally, however, I do not think it would be appropriate simply to dismiss the petition.
I think the appropriate orders are similar to those made in Adamopoulos, that is:
That the petition for sequestration be adjourned to a date to be fixed.
That the parties to the proceedings by way of petition may apply to restore the petition to the list upon reasonable notice.
Costs should, I think, be reserved.
I certify that this and the preceding 10 pages are a true copy of the Reasons for Judgment of the Honourable Justice Lehane.
Associate:
Dated: 1 December 1995
Heard: 14 November 1995
Place: Sydney
Decision: 1 December 1995
Appearances: Mr C R C Newlinds of counsel instructed by Kemp Strang & Chippindall appeared for the petitioning creditor.
Mr R K Weaver of counsel instructed by Browne and Associates appeared for the debtor.
Mr Beverly of Simon Beverly & Associates appeared for a supporting creditor.
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