Pavlic v Macquarie Leasing Pty Ltd
[2015] FCCA 854
•18 February 2015
FEDERAL CIRCUIT COURT OF AUSTRALIA
PAVLIC v MACQUARIE LEASING PTY LTD [2015] FCCA 854
Catchwords:
BANKRUPTCY – Application seeking review of the sequestration order made by a Registrar of this Court against the estate of William Joseph Pavlic – proposal to refinance to facilitate the payment of all creditors – refinancing not achieved – review application dismissed.
Legislation:
Bankruptcy Act 1966 (Cth), ss.52(2), 52(5)
Federal Court Rules (Cth), r.23.13
Davis v ABL Nominees Pty Ltd & Anor [2014] FCCA 2069
Applicant: WILLIAM JOSEPH PAVLIC
Respondent: MACQUARIE LEASING PTY LTD ACN 002 674 982
File Number: SYG 143 of 2014
Judgment of: Judge Lloyd-Jones
Hearing date: 18 February 2015
Delivered at: Sydney
Delivered on: 18 February 2015 REPRESENTATION
Counsel for the Applicant Debtor: Mr J Johnson
Solicitors for the Applicant Debtor: Bransgrove Lawyers
Counsel for the Respondent Creditor: Ms E Glover
Solicitors for the Respondent Creditor: Douros Jackson Lawyers
Solicitors for the Trustee of the Bankrupt Estate of William Joseph Pavlic: Ms Pickthall of Hall & Wilcox
Solicitors for CHH Industrial Capital Australia Pty Ltd: Mr Xenos of Bayside Solicitors
Solicitors for AGCO Finance Pty Ltd: Mr Hadley of Holman Webb ORDERS
(1)The application for review of the sequestration order filed by the applicant debtor, William Joseph Pavlic, on 27 October 2014 be dismissed.
(2)The orders of District Registrar Wall made on 7 October 2014 be approved.
(3)The applicant debtor, William Joseph Pavlic, pay the respondent creditor's, Macquarie Leasing Pty Ltd, costs and disbursements of the application for review of the sequestration order in accordance with the Bankruptcy Act 1966 (Cth).
(4)The applicant debtor, William Joseph Pavlic, pay AGCO Finance Pty Ltd's (supporting creditor) costs and disbursements of the application for review of the sequestration order in accordance with the Bankruptcy Act 1966 (Cth).
(5)The applicant debtor, William Joseph Pavlic, pay CNH Industrial Capital Australia Pty Ltd's (supporting creditor) costs and disbursements of the application for review of the sequestration order in accordance with the Bankruptcy Act 1966 (Cth).
(6)Order 1 of the orders of this Court made on 10 November 2014 be set aside.
THE COURT DECLARES THAT:
(7)The costs and disbursements of the trustee, Geoffrey Philip Reidy, incurred as a result of the application for review of the sequestration order filed on 27 October 2014 are costs and disbursements incurred in the administration of the bankrupt estate of William Joseph Pavlic.
FEDERAL CIRCUIT COURT
OF AUSTRALIA
AT SYDNEYSYG 143 of 2014
WILLIAM JOSEPH PAVLIC Applicant
And
MACQUARIE LEASING PTY LTD ACN 002 674 982 Respondent
REASONS FOR JUDGMENT
Introduction
1.On 21 January 2014, Macquarie Leasing Pty Ltd ACN 002 674 982 (“Macquarie”), filed a creditor’s petition in this Court (the “Petition”), seeking to have a sequestration order made against the estate of William Joseph Pavlic (“Pavlic”).
2.On 7 October 2014 District Registrar Wall made a sequestration order against the estate of Pavlic (the “Sequestration Order”), as well as an order that Pavlic pay Macquarie’s costs of the Petition.
Current Proceedings
3.On 27 October 2014 Pavlic (the applicant on the current application) applied to the Court seeking review of District Registrar Wall’s orders of 7 October 2014 (the “Review Application”). The Review Application is the application currently before the Court.
4.The Review Application first came before this Court on 10 November 2014. Orders were made staying the Sequestration Order, for the filing of evidence by Pavlic and setting the matter down for further directions on 17 November 2014.
5.On 17 November 2014 orders were made by the Court for the trustee of Pavlic’s bankrupt estate (noting the sequestration order had been stayed) (the “Trustee”) to file and serve a document containing a list of creditors to the estate. The matter was adjourned for a further week. Mr Johnson, appearing for Pavlic, informed the Court that his client believed he would be in a position to pay all creditors, including costs at the time of the hearing. However, on the preceding Friday Pavlic became aware of the costs incurred by the Trustee, which forced him into the position of having to seek further funds. In support of this position the Affidavit of Rory Joseph McDonnell, who was the person negotiating the borrowings on behalf of Pavlic, was tendered. It was indicated to the Court that the additional borrowings were being prevented by the existence of a caveat placed by the Trustee on some of the properties involved. Consequently, any settlement had to occur before the Court. Some of Pavlic’s additional creditors were also identified by the Trustee immediately prior to this hearing. The legal representatives of the creditors sought to ensure all creditors would be identified and paid. Consequently, the Review Application seeks an annulment of the sequestration order made against Pavlic’s estate.
6.Ms Glover, appearing for Macquarie, raised the issue that the Affidavit of Rory Joseph McDonnell was unclear as to what the final amount being borrowed would be. It did not disclose which creditors were to be repaid from the refinancing nor the amount that would be paid to them. Ms Glover indicated that her client must be satisfied that all creditors would be paid in full and final satisfaction, before anything could happen in respect of the Review Application before the Court. There was no evidence as to which creditors of Pavlic had been notified of the proceedings. Further, the Trustee had informed the Court and parties present that other creditors had since been identified. These details would need to be addressed by affidavit evidence from Pavlic and information in respect of how these new loans would be serviced would need to be provided. Counsel for Pavlic requested that an order be made by the Court requiring the Trustee to prepare a list of identified creditors to enable Pavlic’s representatives to prepare appropriate payments.
7.On 24 November 2014 an application was made on behalf of Pavlic for a further adjournment due to a notification by an organisation known as AGCO Finance Pty Ltd (“AGCO”), a creditor to Pavlic’s estate, who intended to attend the scheduled hearing. In addition, the Trustee had provided Pavlic with details of further costs it had incurred, which resulted in Pavlic needing to arrange further funds. In support of this application an affidavit prepared by Pavlic was filed and read. The adjournment sought by Pavlic was for a period of two weeks during which he would seek further financing. Orders were made by this Court for the Trustee to serve a qualitative report by 10 December 2014, for Pavlic to file any affidavit evidence by 12 December 2014, and listing the matter for further directions on 15 December 2014.
8.Due to the unfortunate hostage incident that took place in Martin Place, Sydney on 15 December 2014, the Court was unable to hold the directions hearing in respect of the Review Application as planned. Instead, orders were made in chambers on 19 December 2014 pursuant to s.52(5) of the Bankruptcy Act 1966 (Cth) (the “Bankruptcy Act”) extending the life of the Petition to 24 months and listing the Review Application on 18 February 2015.
9.On 18 February 2015, after hearing submissions from the relevant parties to the proceedings, the Review Application was dismissed and District Registrar Wall’s Sequestration Order (and costs order) of 7 October 2014 were affirmed. These reasons give effect to those orders.
Documents Relied Upon
10.The documents relied upon by Pavlic are as follows
a)Affidavit of Nicola Angela Craven affirmed 27 October 2014, Annexure “A” – transcript of hearing before Registrar Wall on 7 October 2014;
b)Affidavit of Norman Anthony Hilton affirmed 27 October 2014, attached Exhibit “NH 1”;
c)Affidavit of William Joseph Pavlic, affirmed 6 November 2014 (“First Pavlic Affidavit”);
d)Affidavit of William Joseph Pavlic, affirmed 24 November 2014 (“Second Pavlic Affidavit”);
e)Affidavit of William Joseph Pavlic, affirmed 15 December 2014 (“Third Pavlic Affidavit”);
f)Affidavit of William Joseph Pavlic, affirmed 18 February 2015 (“Fourth Pavlic Affidavit”);
g)Affidavit of Rory Joseph McDonnell, affirmed 3 October 2014 (the “First McDonnell Affidavit”); and
h)Affidavit of Rory Joseph McDonnell, affirmed 17 November 2014 (the “Second McDonnell Affidavit”);
11.Macquarie filed the following evidence:
a)Affidavit of Ryan Crow, sworn 7 November 2014;
12.The Trustee filed the following evidence:
a)Affidavit of Geoffrey Phillip Reidy sworn 10 November 2014 (“First Reidy Affidavit”);
b)Affidavit of Geoffrey Phillip Reidy sworn 19 November 2014 (“Second Reidy Affidavit”); and
c)Affidavit of Geoffrey Phillip Reidy sworn 11 December 2014 (“Third Reidy Affidavit”) (this was never formally filed in Court, however, appears on the Court file);
Hearing 18 February 2015
13.At the scheduled commencement of the hearing on 18 February 2015, Mr Johnson, counsel for the applicant, was not present as he was in a hearing before the Supreme Court of NSW. Consequently, the matter was adjourned until his arrival. During this adjournment I had the benefit of viewing the affidavits set out above, as well the written submissions prepared by Ms Glover, counsel for Macquarie Leasing. I rely on various parts of Ms Glover’s written submissions which address key aspects of the application before the Court.
Solvency
14.Pavlic seeks the leave of the Court to rely upon the report of Norman Anthony Hilton dated 22 October 2014 in which Mr Hilton has been asked to express his view as to the solvency of Pavlic based on the assumption that Pavlic has refinancing in place with Australian Securities Limited (“ASL”) which would take effect on 31 October 2014 (the “Report”).
15.Macquarie submits that leave should not be granted to Pavlic to rely upon the Report because the Report is largely inadmissible and, further, the Court should refuse to admit the Report because its probative value is substantially outweighed by the danger that it might be misleading and confusing, and cause or result in undue waste of time.
16.The submissions advanced on admissibility and in support of the Court’s general discretion to exclude the Report are intertwined. For convenience, Macquarie relies upon its list of objections and the following submissions in support of both contentions.
Outline of Macquarie’s Contentions
17.The Report does not set out the declaration described at [2.2] of Practice Note CM 7 and required by Rule 23.13 of the Federal Court Rules (Cth).
18.It must be observed from the outset that the crucial assumption, upon which the Report is based, is contradicted by the Second McDonnell Affidavit. Specifically, no refinancing was in place with ASL or any other lender as at 31 October 2014. It appears that the more recent Affidavit served on behalf of Pavlic that the purported refinancing with ASL had not progressed.
19.At [6] of the Report, Mr Hilton concludes that Pavlic is solvent as at the date of the Report. It is self-evident that this conclusion is based on the assumption that Pavlic will settle the refinancing of his current loans in full on 31 October 2014. This did not happen. However, even if the Court were to accept that the refinancing is pending, the conclusion that Pavlic would then be solvent following the receipt of the funds is, for the reasons set out below, erroneous.
Schedule 1 of the Report – Statement of Financial Position
20.Schedule 1 of the Report, being the statement of Pavlic’s financial position as at September 2014 (p.4 of Exhibit “NH1”). The current assets listed in Schedule 1 warrant closer examination commencing with the fact that Pavlic has no cash held at any bank. No evidence has been adduced as to how Pavlic supports himself including paying living expenses. The evidence illustrates that Pavlic has been unable for some time to service his existing debts resulting in defaults. There are a number of judgment creditors. There is no evidence as to how Pavlic will service the repayments on any financing if it eventuates.
21.Mr Hilton includes as a “current asset”, an amount of $260,000-$352,000 for refundable default interest from the National Australia Bank (“NAB”). NAB has a judgment against Pavlic. The NAB agreed to enter into farm debt mediation and that mediation is yet to occur and as such its outcome is unknown. In the notes to Schedule 1, Hilton states, “on the basis of the outcome of the mediation includes an agreement that the default incremental interest rate should not have been charged in these circumstances, we have concluded such amounts as interest refundable”. This statement highlights the contingent nature of the default interest. It is inaccurate to include refundable default interest as a current asset. Further, Mr Hilton’s comments at Annexure “C” (p.13 of Exhibit “NH1”) are not wholly or substantially based on specialist knowledge and the factual basis of the opinion has not been provided by admissible evidence.
22.Plant and equipment to the value of $800,000-$935,000 has been included as a “non-current asset” of Pavlic’s. No admissible evidence has been adduced capable of proving that Pavlic owned any plant and equipment. The list of assets at Appendix “D4” (p.18 of Exhibit “NH1”) includes a Caterpillar 330C excavator. This item of machinery was repossessed and sold by Macquarie on 14 July 2014 and could not be included as an asset of Pavlic as at September 2014.
23.Mr Hilton’s opinion as to the value of the plant and equipment is based upon a letter (which includes hand written notation from an unknown source) said to be from Mr Chris Pettigrove of Echuca Rural. This letter appears at Appendix “D4” at p.18 of Exhibit “NH1” and values the items at $856,000. A further copy of the same letter appears at pp.75-76 of Exhibit “NH1”. However the value of the equipment recorded on the further letter is said to be $561,500.
24.It is submitted that Mr Hilton’s opinion as to the value of the plant and equipment is inadmissible and offends the basic rule that admissibility of expert opinion evidence depends on proper disclosure and evidence of the factual basis of the opinion. The facts upon which the opinion is based must be capable of proof by admissible and evidence must be admissible to prove the assumed fact upon which the opinion is based. Mr Pettigrove has not gone on oath. Mr Pettigrove is not a registered valuer (see p.75 of Exhibit “NH1”). There is no evidence the assets were ever inspected. There is no evidence as to any methodology applied in ascribing the values. The opinion of Mr Hilton as to value of the plant and equipment should be disregarded.
25.Mr Hilton has included in the “current liabilities” a number of loans and finance facilities. At note 7 of Schedule 1, Mr Hilton has assumed that the amounts of these debts are accurate. The facts on which these assumptions are based have not been proved. With respect to the debt due to Macquarie and other “current liabilities”, the evidence is that the debt exceeds the amount listed in Schedule 1 (Second Reidy Affidavit). This fact alone, highlights the unreliable nature of the Report. By reference to Annexure “D”, at p.14 of Exhibit “NH1”, a debt due to AGCO is identified as a current liability. Mr Hilton at Note 10 to Appendix “D” (p.14 of Exhibit “NH1”) recognises the AGCO liability but reduces the debt by reference to a cross-claim “to be brought” by Pavlic for selling a harvester at less than market value. The factual basis of Mr Hilton’s opinion not to include this liability as a “current liability” has not been proved and in any event an anticipated cross-claim would not form a proper foundation for excluding the liability.
26.Appendix “D2” (p.16 of Exhibit “NH1”) is copy of the mortgage advance payment authority, which lists AGCO, B&W Rural Pty Ltd, Harvest Work Solutions Pty Ltd, Polymet Australia as creditors. The combined debt due to these creditors is $163,896. Theses creditors have not been included in Schedule 1 as “current liabilities”.
27.Appendix “D1” (p.15 of Exhibit “NH1”) refers to a debt to CNH Industrial Capital Pty Ltd in the amount of $20,000. This debt has not been included as a “current liability”.
28.Appendix “D2” (p.16 of Exhibit “NH1”) lists three amounts of outstanding council rates totalling $24,633.91. These liabilities have not been included in “current liabilities” at Schedule 1. Appendix “D3” (p.17 of Exhibit “NH1”) lists council rates and updated certificates fees totalling $9,219.91. These liabilities have not been included in Schedule 1as a “current liability”.
Liquidity Test – Appendix “D”
29.Mr Hilton expresses an opinion at [2.15] of the Report that it is evident from the liquidity test (Appendix D (p.14 of Exhibit “NH1”)) that by carefully adopting the estimate of asset market values, there exists sufficient cash and other liquid assets to meet all remaining liabilities. By reference to the Third Reidy Affidavit, sworn 11 December 2014, it is clear that Mr Hilton is not aware of the extent of Pavlic’s liabilities.
30.It is submitted that the opinion expressed by Mr Hilton as to Pavlic’s solvency is flawed and should be disregarded for the reasons set out above concerning the value attributed to the current assets and the reasons that follow.
31.Mr Hilton has included stock values at $113,600 as a current asset. This valuation appears to be based upon assumed or accepted facts, however these fact have not been sufficiently identified or proved. The value of the stock is based upon a document identified as “Appendix “D5” (p.19 of Exhibit “NH1”). Appendix “D5” is partly typed and partly hand written. No evidence has been adduced to prove that Pavlic owns the stock listed in Appendix “D5”. No evidence has been adduced as to the methodology used to value the stock or the qualifications of the person who prepared the valuation. It is submitted that the Appendix “D5” is inadmissible.
32.Mr Hilton includes as a “current asset” the proceeds available from distribution to Pavlic from two loans from ASL, assuming the refinancing eventuates. These proceeds total $1,550,056. The “current liabilities” are $2,350,938. By reference to the material recently served by the Trustee the total of secured and unsecured creditors is $3,629,371.24. Pavlic’s assets do not exceed his liabilities. It is submitted that Pavlic is insolvent.
33.In preparing the Report, Mr Hamilton has reviewed and relied upon a number of documents including financial statements prepared by Lindsay Wells, for the year ending 30 June 2014. The primary source document relies upon, to calculate the amount recorded in the financial statements are not in evidence. No evidence has been adduced by Pavlic to substantiate the income he contends he earns as recorded in the Statement of Affairs.
Refinancing- ASL
34.Pavlic has been seeking to refinance with ASL since October 2013 (First McDonnell Affidavit at [11]). Rory McDonnell received the loan application from ASL on 14 January 2014 (First McDonnell Affidavit at [13]).
35.It is a condition of the ASL loan approval that the property at 173 Browns Road, Cranbourne be immediately put on the market and sold with the minimum of $400,000 bulk reduction being made to ASL Facility Number 1 (First McDonnell Affidavit, Annexure “RM1”, at p.107-110). Pavlic listed the property at 173 Browns Road, Cranbourne for sale with a price estimate of $495,000-$530,000 on 11 July 2014 (First McDonnell Affidavit at [30]). No proper foundation has been established to substantiate the opinion of Mr Hilton at [2.15] of the Report that, “the property at 173 Browns Road, South Cranbourne is to be sold with the expectation of exceeding $500,000… this will provide further cash with which WP will be able to pay down debt”.
36.On 17 September 2014, ASL provided a revised executive summary which included the sale of further real estate to repay new debt (First McDonnell Affidavit at [31]; Annexure “RM”1, p.112-116). On 30 September 2014 Rory McDonnell received the two loan packages from ASL (First McDonnell Affidavit at [32]; Annexure “RM1” at p.117-134). There is no evidence that the various conditions of approval have been met, or that arrangements have been put in place to meet these conditions or that Pavlic’s lawyers have received an amended document as foreshadowed in the email from ASL to Rory McDonnell, dated 24 October 2014 which appears at p.361 of “RM1”.
37.There is no evidence that Pavlic has informed ASL that he is bankrupt other than a conversation deposed to by Mr McDonnell at [5] of the Second McDonnell Affidavit. There is no evidence from ASL that in those circumstances that ASL is still prepared to refinance his debts. There is no evidence before the Court as to the current status of the ASL refinancing.
Refinancing – Prime Capital Finance Pty Ltd and Nationwide Capital Pty Ltd
38.At [4] of the Second Pavlic Affidavit, Pavlic disposes to the fact that he has received two offers of finance from Prime Capital Finance Ltd and Nationwide Capital Pty Ltd, both in the vicinity of $320,000. The offers of finance are not exhibited to the Affidavit and no representative from Prime Capital Finance Pty Ltd or Nationwide Capital Pty Ltd has given evidence in respect of any such arrangement.
39.At [13] of the Second Pavlic Affidavit Pavlic deposes to the fact that Prime Capital Finance Pty Ltd has agreed to lend $350,000 taking the first mortgage over a property at Quarry Road, being a property said to be owned by Pavlic’s de facto. At [14] therein Pavlic deposes to the fact Icom Communications Pty Ltd agreed to be the borrower with his de facto guaranteeing the loan and that settlement would happen within 7 days. No evidence is before the Court from the director of Icom Communications Pty Ld. There is no evidence before the Court that Icon Communications Pty Ltd has agreed to borrow with Pavlic’s de facto to guarantee the loan.
40.Pavlic’s de facto has not given any evidence in the proceeding. Further, there is no evidence that Pavlic’s de facto is willing to “put up her property”, nor is there is evidence as to the value of her property or any equity that she may have therein. There is no evidence as to who would service such a loan or how it would be serviced. The Statement of Affairs records that Pavlic’s de facto’s gross income is only $5,000.
41.Further, there is no evidence that the purported settlement of the property at Quarry Road in fact took place within seven days. Pavlic makes no mention of other creditors and how they are to be paid out.
Refinancing – Capital Equity Group Pty Ltd.
42.At [5] of the Second Pavlic Affidavit, Pavlic deposes to the fact that he has received an offer of refinancing from Capital Equity Group Pty Ltd in the amount of $330,000 on the basis that he grants a second mortgage over the properties listed. The indicative letter of offer from Capital Equity Group Pty Ltd stipulates that the term of the loan is 6 months. Pavlic has adduced no evidence as to how he would service such a loan and repay the loan at the end of the six month period.
43.One of the properties in respect of which Capital Equity Group Pty Ltd would take a second mortgage over is 173 Browns Road, Cranbourne South, Victoria. As noted above, it is a condition of offer of finance of ASL that this property be immediately put on the market with confirmation of agent’s agreements and that a minimum of $400,000 be put to debt reduction on Facility 1. The evidence is that this property is currently on the market. This indicative loan offer from Capital Equity Group Pty Ltd expires on 24 November 2014.
Refinancing – CEG Capital & Equity Group Direct Securities Pty Ltd
44.At [85] of the Third Pavlic Affidavit, Pavlic refers to an unconditional approval of a loan from Capital Equity Group Pty Ltd to Pavlic and his de facto in the amount of $450,000. The term of the loan is three months. No evidence has been adduced as to how Pavlic and his de facto will service this loan. Pavlic’s de facto has not gone on oath. The unconditional approval expired on 17 December 2014.
45.Ms Glover refers the Court to the decision in Davis v ABL Nominees Pty Ltd & Anor [2014] FCCA 2069 per Judge Lucev. His Honour summarised the principles relevant to solvency at [27]-[28] where he stated:
27. Solvency is relevantly expressed in terms of a debtor being “able to pay his or her debts”.[29] If the applicant can prove to the Court that she is solvent then the Court would have the discretion to dismiss the creditors petition.[30] Solvency requires that the applicant be able to pay debts as they fall due out of her own money. This includes both cash on hand and money able to be obtained reasonably quickly by asset realisation. Temporary lack of liquidity will not generally constitute insolvency.[31] Solvency means being “able to pay all ... debts, as and when they become due and payable”.[32] Account must be taken of debts “which will fall due in the reasonably immediate future pursuant to existing obligations”,[33] and whether the debtor will be able to pay them.[34] If a debtor is in a position to pay debts owed within a reasonable time, no sequestration order ought to be made.[35] In assessing solvency the Court ought not take account of realisable assets required for a debtor to live a reasonably comfortable and dignified existence.[36]
28. Mere proof of solvency may, however, not be sufficient: the relevant assets must be available to be realised and capable of ready realisation, so that assets not available for execution of garnishment by creditors may not be proof of an ability to pay debts, and a capacity to borrow to pay debt, but a refusal to do so, may result in a court exercising its discretion against the debtor.[37]
[29]Bankruptcy Act, s.52(2)(a).
[30] Re Sanders; Knudsen and Yates (t/a The Hargreaves Practice) v Sanders (2003) 1 ABC(NS) 408 at 413 per Bennett J; [2003] FCA 1079 at para.22 per Bennett J (“Re Sanders”).
[31] Sandell v Porter & Anor [1966] HCA 28; (1966) 115 CLR 666 at 670 per Barwick CJ (“Sandell”).
[32] Bankruptcy Act, s.5(2).
[33] Re Sanders ABC(NS) at 414 per Bennett J; FCA at para.27 per Bennett J.
[34] Re Sanders ABC(NS) at 414 per Bennett J; FCA at para.26 per Bennett J; International Alpaca Management Pty Ltd v Ensor [1999] FCA 72 at paras.8-10 per Katz J (“International Alpaca”); Bank of Australasia v Hill (1907) 4 CLR 1513 at 1527 per Griffith CJ.
[35] Re Sarina; Ex parte Council of the Shire of Wollondilly [1980] FCA 66; (1980) 43 FLR 163 at 165 per Deane J (“Sarina”); Sarina v Council of the Shire of Wollondilly [1980] FCA 138; (1980) 48 FLR 372 at 375 per Bowen CJ, CA Sweeney and Lockhart JJ (“Shire of Wollondilly”).
[36] International Alpaca at paras.15-16 per Katz J.
[37] Trojan v Corporation of Hindmarsh [1987] FCA 276; (1987) 16 FCR 37 at 48 per Northrop, Jenkinson and Burchett JJ; Australia & New Zealand Banking Group v Foyster [2000] FCA 400 at para.17 per Hely J; Dunn, in the matter of Dunn v Vangsnes [2000] FCA 1051; Re Elwyn John Capel (Debtor); Ex parte Caram Finance Australia Limited (formerly called Marac Finance Australia Limited) ACN 000 098 402 (Creditor) (unreported, Federal Court of Australia, QG 7299 of 1997, Finn J, 9 April 1998).
46.Macquarie contends that Pavlic has failed on the evidence to establish that he is able to pay his debts as required by s.52(2) of the Bankruptcy Act.
47.There is no corresponding submission made by Mr Johnson on behalf of Pavlic and as indicated in the background material above, it was the intention of Pavlic to resolve this matter by raising sufficient funds to be able to pay all creditors to his estate.
48.I now turn to the various affidavits of Geoffrey Philip Reidy in his capacity as Trustee that are present in the Court file. The First Reidy Affidavit indicates that he was appointed as Trustee on 7 October 2014, pursuant to orders of this Court. The Affidavit then provides a list of steps taken by him to establish the status of Pavlic’s financial affairs in accordance with his duties as Trustee. In support of the contents of that Affidavit there are thirteen annexures which contain relevant correspondence.
49.In the Second Reidy Affidavit, Reidy states at [2]-[3]:
2. Pursuant to a request of this Honourable Court, attached a creditors list which is marked “GPR 14”.
3. In preparing the creditors list, I caused a number of enquiries in respect to the notional amounts and where possible verified the amounts claimed by various creditors.
50.Annexure “GPR 14” contains the following information in respect of creditors to Pavlic’s estate (which has been consolidated to the effect that postal addresses have been deleted):
Secured Creditors
| Secured Creditors | SOA | Trustee Enquiries | Source |
| Capital Finance Australia | Not disclosed | 14,078.98 | Creditor |
| City of Casey Council | Not disclosed | 33,398.73 | Expert |
| CNH Industrial Capital Australia | 101,000.00 | 116,000.00 | Creditor |
| Commissioner of State Revenue (Victoria) | Not disclosed | Unknown | |
| Esanda Finance Corporation Limited | 100,000.00 | 245,793.49 | Creditor |
| National Australia Bank | 82,000.00 | 113,963.11 | Expert |
| National Australia Bank | 1,400,000.00 | 1,846,307.00 | Expert |
| RAMS Financial Group Pty Ltd | 4,50,000.00 | 458,298.94 | Creditor |
| TOTAL SECURED CREDITORS | 2,133,000.00 | 2,827,840.25 |
Unsecured Creditors
| Unsecured Creditors | SOA | Advised | Source |
| AGCO Finance Pty Ltd | 75,000.00 | 88,219.64 | Creditor |
| ATO | Not disclosed | 4,000.00 | Expert |
| B & W Rural | Not disclosed | 8,691.50 | Creditor |
| BP Australia Pty Limited | Not disclosed | 30,000.00 | Veda Search |
| Commonwealth Bank of Australia | Not disclosed | 20,398.76 | Creditor |
| De Lage Landen | Not disclosed | 131,137.00 | Veda Search |
| Harvest Work Solutions Pty Ltd | Not disclosed | 2,013.25 | Creditor |
| Macquarie Leasing | 48,000.00 | 144,855.61 | Creditor |
| Polymet Australia Pty Ltd | Not disclosed | 39,950.31 | Creditor |
| Westpac banking Corporation | Not disclosed | Unknown | Veda |
| York Street Capital (Equity) Pty Ltd | 25,000.00 | 25,000.00 | SOA |
| TOTAL UNSECURED CREDITORS | 148,000.00 | 494,266.07 |
51.The Third Reidy Affidavit was prepared in response to an order of this Court made on 24 November 2014 ordering that:
The Trustee of the Bankrupt Estate of William Joseph Pavlic in the current proceedings to make a qualitative report to be filed and served by 10 December 2014.
A copy of the Third Reidy Affidavit is located on the Court file, but contains no record of it being filed in the Court Registry or being handed up in Court. Consequently, the document has not been considered during my review in respect to the issue of solvency.
52.Mr Johnson, appearing for Pavlic, sought to tender in court a number of bank cheques made out to a number of Pavlic’s creditors. These cheques were made out to:
a)Macquarie in the amount of $100,000;
b)Polymet Australia in the amount of $25,770.31;
c)Hyde Cooper & Associates in the amount of $4,000;
d)Wyalong Machinery in the amount of $4,636.91;
e)B & W Rural in the amount of $8,691.50;
f)Harvest Work Solutions in the amount of $2,013.25;
g)Dettmann Longworth in the amount of $8,232.15; and
h)Rogers Reidy (the Trustee) in the amount of $51,116.35.
Total Amount: $184,460.47
53.Mr Johnson indicated the funds used to draw the cheques had been given to Pavlic by his de facto by way of gift. Mr Johnson then sought to move on the Review Application. Mr Johnson also sought to read the Fourth Pavlic Affidavit as well as the remainder of the affidavits filed by Pavlic in the proceedings.
Macquarie’s Submissions
54.Ms Glover, appearing for Macquarie, indicated she still opposed the Review Application. It was submitted by Ms Glover that the matter before the Court was one where the Trustee had been involved extensively. At each hearing, Pavlic had come to court with fresh evidence that had often not been served on the parties.
55.Ms Glover stated that again the Court was presented with a situation where there were numerous cheques as well as a submission that the funds that had been made available for creditors were a gift, however, there was no evidence of that before the Court. Further, parts of the Fourth Pavlic Affidavit were unsubstantiated.
56.Ms Glover contended the Trustee had reviewed the Fourth Pavlic Affidavit, but was unable to come to a conclusion as to whether or not Pavlic was, in fact, solvent. There was no substantive evidence in relation to the secured creditors and whether the assets held by Pavlic would be able to be relied upon in discharging debts to the secured creditors. Further, there was no satisfactory evidence before the Court of any income earned by Pavlic, despite assertions by him.
57.Ms Glover submits that in relation to the position of solvency there is no evidence of money in any bank account. There is no evidence of the true value the assets that may be relied upon or that are subject to security. There is no proper evidence in relation to the gift of the money which makes up the cheques and whether or not that truly presents a further debt for the bankrupt. There is no evidence of any income. In Pavlic’s Statement of Affairs he has declared an income of $290,000 in the 12 months prior to October 2014, but there are no supporting income statements or supporting bank statements. There are no supporting tax payments.
58.Ms Glover submits that Pavlic has declared a projected income of $300,000 from October 2012 for the proceeding twelve months forward of that, but there is no evidence of there being any income received during that period. No tax payments have been placed in evidence. No bank statements have been tendered that would show any receipt of any income. So the ability to service any further debt, or the notion that this gift may actually convert into a loan is not available. Further, there is no evidence to suggest that there are sufficient funds to discharge the other creditors. Ms Glover argues that for that reason alone, it is not possible to make any submissions in relation to Pavlic being solvent.
59.Ms Glover submitted that, on that basis, and on the evidence before it, the Court could not be satisfied that Pavlic was solvent.
60.Ms Glover acknowledges that the Trustee has not been able to undertake what would be the normal steps to determine Pavlic’s solvency because of the existence of the Court’s order staying the sequestration order. Further, there is no evidence that would suggest that Pavlic is solvent.
Supporting Creditors’ Submissions
61.A number of supporting creditors appeared at the hearing on 18 February 2015.
62.Their submissions echoed those of Ms Glover in that there was nothing before the Court to support the contention that Pavlic was, in fact, solvent. Further, the previous adjournments that had been granted to Pavlic were done so on the basis that he was arranging a refinancing loan that would satisfy all his debts, which never occurred.
63.Mr Xenos submits that the loan refinancing arrangements have not come to fruition some two months after the last hearing and there is no documentation before the Court that states that this refinancing is actually going to occur. The Fourth Pavlic Affidavit which was sought to be filed in Court during this hearing was nothing more than a summary of the creditors who have agitated, within these proceedings, that they are owed money by Pavlic. The Trustee has not been able to advertise to see who else is out there and who else says that they are owed money by Pavlic.
64.Mr Xenos contends that, as a result of the proposed distribution of cheques, Pavlic’s de facto has come to an arrangement with Macquarie and, if Macquarie decided to accept, that would be commercial decision for that organisation. However, this side arrangement with Macquarie has nothing to do with whether or not Pavlic is, in fact, solvent. The money that is owed to CNH Industrial Capital Australia is a significant amount and there is no issue in relation to that quantum. The only matter that Pavlic, through his solicitors, is now seeking to agitate in the state court is that mediation did not take place. Mr Xenos contends that at previous hearings there has been evidence in relation to the significant debt that Pavlic has to many entities and financial institutions with an explanation that those creditors have been contacted and that negotiations are to be continued. There is no evidence before the Court to support that this has happened and arrangements have been made to address the debts. Consequently, from a public policy point of view, Mr Xenos contends that the Registrar’s decision should not be amended or altered and that the Registrar’s decision should be maintained and the Sequestration Order also be maintained against Pavlic.
65.Mr Hadley indicated that is client adopts the position of the creditor and supporting creditors that there does not appear to be anything before the Court to establish Pavlic’s solvency.
Consideration
66.I indicated to the parties present on 18 February 2015 that I had considered the evidence before the Court, but was unable to be satisfied Pavlic was solvent. Mr Johnson sought to file two affidavits of Pavlic which had already been filed in Court on 18 December 2014 and a photocopy of the Fourth Pavlic Affidavit which sets out Pavlic’s current position in relation to his finances. He indicated, subject to the reading of those affidavits, particularly the Fourth Pavlic Affidavit, he had in Court a number of bank cheques which he was instructed to tender subject to, in the case of Macquarie, them then being received in full and final satisfaction of claims. The eight cheques were tendered in escrow, in that they were provided on the basis that it was conditional upon the Creditor’s Petition being dismissed which was a matter for the Court’s discretion. Mr Johnson then sought to move on the Review Application and sought to read all of the affidavits of Pavlic, in particular the Fourth Pavlic Affidavit.
67.As indicated elsewhere in this decision, during the lengthy on 18 February 2015, adjournment, I had the opportunity to review the materials previously filed, Ms Glover’s submissions and the unexecuted Fourth Pavlic Affidavit which carries an intended affirmation date of 17 February 2015. Within the body of the Affidavit, Pavlic has set out the organisations to which he is indebted and gives a status in respect to each of those organisations. Eight creditors have been identified to be recipients of bank cheques drawn from the gift from Pavlic’s de facto partner. Other organisations have been addressed by short notations indicating that arrangements have been negotiated for either monthly payments or some form of deferment of the debt due to negotiations. As indicated in the submissions made by Ms Glover, which are summarised above, the substantial failing is that there is no supporting evidence for these claimed arrangements. I do not believe that it is necessary to repeat the submissions made by Ms Glover, which are set above, as the position is clear that the material before the Court is not sufficient for it to be satisfied that Pavlic is solvent.
68.Mr Johnson was then afforded an opportunity to make submissions in reply, however, he indicated that he did not want to.
69.Due to the nature and format of the presentation of evidence in support of this application and the lack of any systematic approach to support the claims contained in Pavlic’s various affidavits, I am not in the position to be satisfied that Pavlic is solvent or that all outstanding creditors will be satisfied. The Review Application must be dismissed and the Orders or Registrar Wall made on 7 October 2014 should be affirmed. Further, costs should be awarded to Macquarie and the various supporting creditors who appeared at the various hearings in accordance with the Bankruptcy Act.
I certify that the preceding sixty-nine (69) paragraphs are a true copy of the reasons for judgment of Judge Lloyd-Jones
Associate:
Date: 18 February 2015
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