Re Collins, M.P. Ex Parte Quantivale P/L

[1992] FCA 924

Re: MICHAEL PHILIP COLLINS
Ex Parte: QUANTIVALE PTY LIMITED
No. S N686 of 1992
FED No. 924
Number of pages - 7
Bankruptcy

COURT

IN THE FEDERAL COURT OF AUSTRALIA

SOUTH AUSTRALIAN DISTRICT REGISTRY
BANKRUPTCY DIVISION
O'Loughlin J.(1)

CATCHWORDS

Bankruptcy - Bankruptcy Notice - Application to establish a counter-claim, set-off or cross-demand under s.40(1)(g) - Application dismissed.

Bankruptcy Act 1966 (Cth)

HEARING

ADELAIDE

#DATE 8:10:1992

Judgment Debtor : Mr. M.P. Collins in person

Counsel for Judgment Creditor: Mr. G.D. Edmonds-Wilson

Solicitors for Judgment
Creditor : Baker O'Loughlin

ORDER

The Court:

1. Declares that the debtor does not have a counter-claim, set-off or cross-demand of a nature that could have been raised by him in the proceedings in which a judgment debt was obtained.

2. Orders that the debtor pay the judgment creditor's costs of and incidental to these proceedings.
Note: Settlement and entry of order is dealt with in Bankruptcy Rule 124.

JUDGE1

O'LOUGHLIN J. The judgment creditor, Quantivale Pty Limited, instituted proceedings against Michael Philip Collins, the debtor, in the District Court of Adelaide. A defence was filed and the matter was listed for trial in due course. The action came on for hearing on 17 July in the presence of Mr Short of counsel for the plaintiff and Mr Bell of counsel for the defendant. On 21 July 1992, the Court ordered that judgment be entered for the plaintiff for $50,043.85 with costs to be taxed. At all times the debtor was represented by legal advisers; his solicitors prepared his defence; his counsel presented that defence in a trial before Judge Lowrie which lasted some three days. It is pertinent for the purposes of these reasons to note that no counter-claim, set off or cross-demand was raised in those proceedings. Based on the above mentioned judgment, the judgment creditor issued a bankruptcy notice on 5 August 1992; that was served on 7 August 1992.

1. The provisions of paragraph 40(1)(g) of the Bankruptcy Act 1966 (Cth) are relevant for the purposes of these reasons. That paragraph states that a debtor commits an act of bankruptcy if a creditor, who has obtained against the debtor a final judgment (such as Quantivale obtained in this case), has served on the debtor a bankruptcy notice and the debtor does not "comply with the requirements of the notice or satisfy the Court that he has a counter-claim, set-off or cross-demand equal to or exceeding the amount of the judgment debt...". The judgment creditor must satisfy the court that execution on the judgment has not been stayed. That has been done. However, the debtor must not only establish the existence of a counter-claim, set-off or cross-demand, he must further satify the court that it was a counter-claim, set-off or cross-demand that he could not have set up in the District Court proceedings in which judgment was obtained.

2. The bankruptcy notice required the debtor, within a period of 14 days after service, either to pay or secure the payment of the judgment debt or compound that debt to the satisfaction of the court. The bankruptcy notice then went on to say:
   

"AND FURTHER TAKE NOTICE that if, within the period set out above, you fail either to comply with either of the abovementioned requirements of this notice or to satisy the Federal Court of Australia that you have a counter-claim, set-off or cross-demand equal to or exceeding the sum specified in paragraph (a) of this Notice, being a counter-claim, set off or cross-demand that you could not have set up in the action in which the judgment was obtained, you will have committed an act of bankruptcy on which bankruptcy proceedings may be taken against you."

Within that 14 day period, the judgment debtor filed in this court an affidavit claiming that he had such a counter-claim, set-off or cross-demand. In taking that action he invoked the protective provisions of ss.41(7) of the Bankruptcy Act. That sub-section is in the following terms:

"Where, before the expiration of the time fixed for compliance with the requirements of a bankruptcy notice, the debtor has filed with the Registrar an affidavit to the effect that he has such a counter-claim, set-off or cross-demand as is referred to in paragraph 40(1)(g), and the Court has not, before the expiration of that time, determined whether it is satisfied that the debtor has such a counter-claim, set-off or cross-demand, that time shall be deemed to have been extended, immediately before its expiration, until and including the day on which the Court determines whether it is so satisfied."

1. In other words, the 14 day period referred to in the bankruptcy notice is extended indefinitely until the court has had sufficient opportunity to hear the submissions of the parties, to evaluate the evidence that has been presented before the court and to make its decision. It is necessary at this stage to investigate the affidavit and oral evidence that has been adduced for the purpose of determining whether the debtor has satisfied the twin tests of establishing the existence of a counter-claim, set-off or cross-demand and of further establishing that it is of such a nature that it could not have been set up by him in the District Court proceedings.

2. In his affidavits Mr Collins addressed two subject matters. The first of these was in relation to a sum of $20,000. His claim was that he had lent the judgment creditor that sum of money on 1 June 1987; however he said that he had forgotten about that loan and that was the reason why it was not raised by him in the District Court proceedings. Of that let me say two things immediately. The first is that it constitutes an implied acknowledgment by Mr Collins that he would have had the ability to have raised the loan of $20,000 as a counter-claim in the District Court proceedings. If that is correct then, of course, it is a counter claim of a nature that could have been raised in the District Court proceedings; hence it does not fall within the protective provisions of the Bankruptcy Act. The second matter is that I agree that, if there were indeed a loan of $20,000 by Mr Collins to Quantivale and if, at the time of the institution by Quantivale of the District Court proceedings, the $20,000 remained still due and payable to Mr Collins, he could have mounted a counter-claim in the District Court proceedings for the recovery of that $20,000. I conclude that if there is in existence such a claim as this $20,000 it is not that type of claim which is covered by the provisions of the Bankruptcy Act which I have already read out as part of my reasons in this matter.

3. The second claim is far more complicated. It would seem that Mr Collins and a man called Rutar were, at one time, both directors of the judgment creditor and of some associated companies. As I understand it, Mr Rutar who remains a director, gave evidence against the interests of Mr Collins for the judgment creditor in the trial. In the course of that evidence, Mr Rutar apparently gave details of his past salary and other emoluments which has led the debtor, Mr Collins, to claiming that the judgment creditor now owes him a figure of $37,575 or thereabouts. In his affidavit of 21 August 1992, Mr Collins pursued that claim of $37,575 in these terms. He said, in paragraph 11 of the affidavit, that in or about 1985:
   

"(I)t was agreed between Rutar and myself that his wages should be paid by the sister company and that my wages should be paid by the Judgment creditor."

1. Later in paragraph 19 of the same affidavit, he continued:
   

"Part of the agreement as referred to in paragraph 11 was that I was to receive the same wage package as Rutar. I therefore estimate that I am owed a considerable sum in 'back year wages' for my employment and direction dues prior to my dismissal in March 1990. I estimate that sum to be at least $37,575 as being the same amount owing to Rutar."

1. The alleged debt of $37,575 was the subject of further evidence by Mr Collins in the witness box. Lamentably, it shows a lack of comprehension by him, first of the evidence given by Mr Rutar in the District Court proceedings, and secondly, of the onus that he carries as a debtor who is seeking to challenge the efficacy of the bankruptcy notice.

2. As a result of cross-examination, the effect of Mr Collin's evidence on the subject of the $37,575 has to be summarised in these terms. First, let it be said that if Mr Rutar did say in evidence in the District Court proceedings that the judgment creditor owed him $37,575 then Mr Collins conceded in evidence that he, Mr Collins, did not know whether that was a truthful assertion on the part of Mr Rutar. Hence, Mr Collin's claim to be owed $37,575 is limited to a proposition which is couched in these terms:
   

"I do not know that the company owes Mr Rutar any sum of money, but if it does, then it owes me the same sum of money."

1. A proposition advanced in those terms fails dismally to meet the onus that any debtor would have to satisfy in this court; likewise it would fail to satisfy any court where a person was seeking to enforce a claim of $37,575 or any sum against an alleged debtor. I must say, as to this aspect of the matter, that I am not even satisfied that there is a counter-claim, set-off or cross-demand at all - first, for the reasons I have just set out, and secondly, because in paragraph 11 of his affidavit Mr Collins claimed that the agreement as to identical wages was an agreement made between him and Mr Rutar - not between him and the judgment creditor, Quantivale Pty Limited.

2. Having come to that conclusion, let me emphasise an additional aspect. Let it be assumed that I am wrong in what I have just said. Let it be assumed that the evidence was sufficient to indicate the existence of a claim of $37,575 or thereabouts - such a claim would have been a most appropriate subject for a counter-claim in the District Court proceedings.

3. Finally, Mr Collins addressed the further question of him being owed about $15,000 for outstanding bonuses. Ignoring for the moment, the fact that that subject was not properly addressed in his affidavit material, I mention it only for the purposes of explaining why it cannot play any part in my deliberations. Under cross-examination, Mr Collins made it clear that his primary complaint against Quantivale related to the alleged failure by Quantivale to supply to Mr Collins full and detailed particulars of his loan accounts and his other accounts with the company. He conceded that he did not know whether he was owed $15,000 for bonuses. At the most, I can elevate his evidence on that subject to a belief, perhaps honestly and reasonably held, but falling far short of presenting the degree of satisfaction that a court would need.

4. At this stage, the question for me to determine is whether or not the debtor has a counter-claim, set-off or cross-demand equal to or exceeding the judgment debt, being a counter-claim, set-off or cross-demand of a nature that could not have been raised by the debtor in the proceedings in which the District Court judgment was obtained. For the reasons that I have set out, I have determined that I am not satisfied that the debtor has such a counter-claim, set-off or cross-demand as is referred to in paragraph 40(1)(g) of the Bankruptcy Act. There will be a declaration accordingly. The debtor must pay the judgment creditor's costs of and incidental to these proceedings.