Re Hudson, J.B. v Ex Parte Bank of New Zealand Re Hudson, J.H. v Ex Parte Bank of New Zealand

[1989] FCA 434

JUDGMENT No. ..!!..?.4?..,89-

IN THE FEDERAL COURT OF AUSTRALIA ) i

GENERAL DIVISION ) QLD PET NO. 144 of 1989

QLD PET NO. 154 of 1989

BANKRUPTCY DISTRICT OF THE SOUTHERN)

DISTRICT OF THE STATE OF QUEENSLAND)

RE: JOHN BERESFORD HUDSON

EX PARTE: BANK OF NEW ZEALAND

RE: ELIZABETH JANE HUDSON

EX PARTE: BANK OF NEW ZEALAND

MINUTE OF ORDER

JUDGE MAKING ORDER:  SPENDER J .

DATE OF ORDER:	28 JULY 1989
WHERE MADE:	BRISBANE
THE COURT ORDERS THAT:

(1) A sequestration order be made against the

estate of John Beresford Hudson.

(2) A sequestration order be made against the

estate of Elizabeth Jane Hudson

(3) The costs of and incidental to the petition, limited to one hearing day, be paid in accordance with the Act.

(4) The Bank of New Zealand pay each of the debtorst costs of 23 May, 25 and 26 June 1987, to be taxed if not agreed.

=he Bankruptcy Rules.

NOTE :  Settlement and entry of orders is dealt with by Rule 124

RE: JOHN BERESFORD HUDSON

EX PARTE: BANK OF NEW ZEALAND

RE: ELIZABETH JANE HUDSON

EX PARTE: BANK OF NEW ZEALAND

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EX TEMPORE REASONS FOR JUDGMENT

These are two creditor's petitions. They are based on judgment debts, founded on a judgment by Carter J. in the Supreme Court of Queensland on 13 January 1989. By that judgment his Honour ordered that John Beresford Hudson (the male debtor) pay

$1,015,596.99 claim and $50,698.52 for interest, making a total judgment debt of $1,066,259.51, and that Elizabeth Jane Hudson	(the female debtor) pay a sum for claim and interest totalling
$743,260.12. Both debts are owed to the Bank of New Zealand (the
bank ) .
The petitions are based on that judgment but do not include any component for taxed costs.
The notice of intention to oppose in kespect of each of the petitions contains a number of grounds:-

(1) That the Petitioning Creditor is a secured Creditor within the meaninn of that term and

S. 5(1) of the - ~ a n k r u ~ t c ~ Act 1966 and which said

securities [and I emphasise the plurality] the Petitioning Creditor has failed to disclose or in the alternative to the extent that there is disclosure of a certain mortgage over property described as sub-sub-lease number 8631 over part of sub-lease number 8602, the said particulars as to the type and value of the security are materially false.

(2) That the sum specified on the Bankruptcy Notice at

paragraph 2 of the Creditor's Petition.. .is less than the
sum recovered under the order of the Supreme Court...to
the extent that the said order included an order that the
Debtor pay the Judgment Creditor's costs of the action
including the costs of and incidental to the application
for summary judgment to be taxed.

(3) That the Debtor has secured and the Judgment Creditor has

the present capacity to obtain from that security the sum
referred to in...the Creditor's Petition.

(4) That the Debtor is able to pay his debts.

The notice of intention to oppose further specifies that other sufficient cause exists, namely that the creditor has, by entering into possession of the property of Mr. and Mrs. Hudson and of two companies, Joel Investments Pty. Ltd. and 14aungold Pty. ~td., pursuant to securities held by the bank, prevented each of the debtors from realising assets available to satisfy the

judgment debt.

In the course of the proceedings there was reference also to what is said to be a lack of bona fides on the part of the bank in its handling of the assets of the debtors and the two companies and also delay and improper conduct on the bank's behalf which, on discretionary grounds, should disentitle it to the grant of the sequestration orders.

It should be said at the outset that there is no dispute

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l	as to the judgment debts and it is accepted that the petitions
I	!	otherwise satisfy the requirements of the Act; the matters in the notice of intention to oppose being the only bases on which
I	sequestration orders should be refused.
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These proceedings arise out of loans made by the Bank of New Zealand to the debtors. Proceedings issued in November 1988 in respect of sums advanced to Mr. and Mrs. Hudson and to Joel

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' Investments Pty. Ltd.. A notice of demand dated 5 October 1988

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was issued by the bank. It is in respect of aspects covered in the notice of demand that a principal complaint to the petition is based.

Mr. Hudson, in an affidavit filed on 24 April this year, drew attention to the fact that the original petition did not disclose that the bank held security ovel: a unit on Hamilton Island. Subsequently, an amended petition acknowledging that the bank has security in respect of shares associated with that unit, and valuing the security at $315,000, has been presented.

Mr. Hudson says the amount of the judgment debt, to

which I have earlier referred, -

"arises out of advances made to myself and my wife

... and to our associated companies, namely

Maungold Pty. Ltd. and Joel Investments Pty. Ltd. The companies were generally known as 'The Hudson Groupr. My wife and myself hold all the shares and are the directors of each of the companies Maungold Pty. Ltd. and Joel Investments Pty. Ltd."

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Maungold Pty. Ltd. is the registered proprietor of a sub-lease of vacant land on Hamilton Island and Joel Investments Pty. ~ t d . has a 47.5% interest in a partnership which conducts a chinese restaurant on Hamilton Island.

Mr. Hudson refers to the notice of demand to which I have earlier referred and says in his affidavit:-

".. . the judgment creditor claimed to hold the

following securities in relation to myself and my wife, and which securities were detailed in [the notice of demand]"

Amongst those securities was:-

"[An] Assignment and charge upon shares dated the 7th April, 1987 and signed by both myself and my wife. These are shares in the companies referred to in sub-para. (d) above"

Those companies are Joel Investments Pty. Ltd. and Maungold Pty.
Ltd.. He swore:-

"To the best of my knowledge each of these securities still exists. Copies of the securities were kept by the judgment creditor."

Notwithstanding that the hearing of these petitions has extended over three months now, the bank has not adduced evidence to contravert those assertions. I myself have some reservations whether there is such a charge over the shares of Maungold Pty. Ltd.. It is extraordinary, in my view, that if there is no such charge, the bank did not depose to that absence. The notice of demand, which is a document of the petitioning creditor, itself

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says that Mr. and Mrs. Hudson are party to sbme or all of the securities set out in Schedule B, which securities are to secure repayment of some or all of the moneys referred to in Schedule A.

Listed in Schedule A are three amounts advanced to Mr. and Mrs. Hudson and four amounts advanced to Joel Investments Pty. Ltd.. In Schedule B, under the heading "Securities" and a sub-heading "John Beresford Hudson and Elizabeth Jane Hudson", is listed as item 6, "Assignment and Charge of Shares dated 7th April 1987 given by John Beresford Hudson and Elizabeth Jane Hudson", and under the sub-heading "Joel Investments Pty. Ltd.", as item 13 is listed "Assignment and Charge of Shares dated 7th April 1987 given by John Beresford Hudson and Elizabeth Jane Hudson".

The bank therefore in its notice of demand clearly indicated that there was in fact a charge on shares given on 7 April 1987 by Mr. and Hrs. Hudson. No such document has been produced nor has there been any sworn evidence from the debtor to say that there was no such charge of shares dated 7 April 1987 given by Mr. and Mrs. Hudson.

In the circumstances the evidence compels me to conclude

that there was in fact a charge over the shares of Maunfold Pty.
Ltd. dated 7 April 1987.

It was submitted by counsel on behalf of the bank that, even if I were of that view, the bank was not a secured creditor within the meaning of the Bankruptcy Act 1966.

Section 5(1) defines a "secured creditor" as follows:-

"'secured creditor' in relation to a debtor, means a person holding a mortgage, charge or lien on property of the debtor as a security for a debt due to him from the debtor;"

It was suggested by counsel for the bank that the charge over the shares was not as a security for a debt due to the bank from Mr. and Mrs. Hudson. Having regard to the notice of demand, I do not accept that submission. It seems to me that if there be a charge given on 7 April 1987 by Hr. and Mrs. Hudson, that was given as a security for a debt due by the Hudsons to the bank and constitutes the bank a secured creditor in respect of that debt.

It was then submitted that, were I to be of that opinion, I ought to amend the petition by having the bank acknowledge that security and waiving the benefit of it. In my opinion I ought to make the amendment suggested by counsel, and I permit the petition to be amended in that way.

Counsel for the debtors submitted that I ought not been taken and litigated, it would be unfair to the Hudsons to	permit the amendment to be made because, since this point has	allow the bank to amend its petition as it now requests.
The reason I have allowed the amendment is that to do otherwise would be only forestalling the inevitable and would be incurring costs unnecessarily.
In Re Finn; Ex parte Amoco ~ustralila Ltd. (1982) 41 A.L.R. 487, Fitzgerald J. gave leave to a petitioning creditor to amend a petition to allege matters required by the provisions of S. 44 of the Bankruptcy Act 1966, notwithstanding that the
relevant allegations were not made in the petition at the time of its presentation. He relied on Re Florance; Ex parte Turimetta Properties Pty. Ltd. (No. 2) (1980) 39 F.L.R. 400, a judgment of Lockhart J.
Lockhart J. permitted the amendment of a petition on the bases that Turimetta Properties Pty. Ltd. did not know it was a secured creditor until a judgment had been handed down, and that no prejudice would be sustained by the debtor if leave were granted.
In my opinion, not to grant the amendment would merely require the incurring of costs unnecessarily and I propose in the order for costs to recognise the success of the debtors in their contention on the existence of a charge, making the bank a secured creditor in that respect.
As to the issue in the notice of intention to oppose dealing with the absence of an amount for taxed costs in the petition, it was conceded by counsel for the debtors that a petition which omits those matters, on the authorities, is not invalid and I dismiss that basis of objection to the making of a sequestration order.
The fundamental submission on behalf bf the debtors was that, while the bank did not have security from the debtors equal to or exceeding the debt, it did have security from Maungold and from Joel Investments which, at least in Hrs. Hudson's case, exceeded the amount of the judgment debt against her and that in those circumstances a sequestration order should not be made.

Section 5 2 ( 2 ) of the Bankruptcy Act 1966 provides:-

"If the Court is not satisfied with the proof of any of those matters, or is satisfied by the debtor -

(a) that he is able to pay his debts; or

(b) that for other sufficient cause a sequestration order ought not to be made,

it may dismiss the petition."

Section 44 dealing with secured creditors is also relevant, and sub-section (3) of that section provides:-

" A secured creditor may present, or join in

presenting, a creditor's petition as if he were an unsecured creditor if he includes in the petition a statement that he is willing to surrender his security for the benefit of creditors generally in the event of a sequestration order being made against the debtor."

"Where a petitioning creditor is a secured

creditor, he shall set out in the petition

particulars of his security."

Fundamentally, I do not accept the proposition that if a
debtor has security from various sources which exceed the amount

of the judgment debt, a court in the exerciselof its discretion	I...
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under S. 5 2 ( 2 ) should not order a sequestration.	It is clear	L S
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that neither Mr. nor Mrs. Hudson can pay the amount of the judgment debt without the realisation of the assets constituted by a home unit on Hamilton Island which is registered in their names, a block of vacant land on Hamilton Island which is owned by aaungold Pty. Ltd., and the interest in the restaurant business of Joel Investments Pty. Ltd.. The situation is that they are unable to pay their debts, because these assets will take some time to be realised. But the submission of counsel for the debtors was, particularly in Mrs. Hudson's case, that the court ought not to make a sequestration order because the assets available to the bank to satisfy her debt are more than sufficient for that purpose. I have indicated that I reject that fundamental premise.

Moreover, even on a factual basis, there are reasons for believing that that is not the case.

I will take $315,000 as the value of the home unit

because the amended petition values it at that amount, even

associated with the sale of it, as well as arrears of rates. So	though there is necessarily to be commission and other costs
far as the vacant land is concerned, I think it right to take as the relevant figure the sum of $442,500. In respect of the restaurant business it was submitted on behalf of the debtors that it had a positive value of approximately $74,000. This included no amount for goodwill.
There is a contentious question as do whether, on the sale of the restaurant business, an amount is payable pursuant to clause 12 of the licence agreement with Hamilton Island Enterprises Pty. Ltd.. It seems to me, although it is unnecessary for present purposes to decide, that the provisions of the Retail Shops Act 1984, (Qld.) do not apply to this business and, further, there is a moot point as to whether the provisions of clause 12(10) of the licence agreement apply in the circumstances where the licensee is a partnership of three corporations. But, taking the position at best for Mr. and Mrs. Hudson, there is something of the order of $75,000 from Joel Investments Pty. Ltd. to be looked at.
The fact of the matter is that Maungold Pty. Ltd. has given a guarantee limited to $360,000 to the bank and that from the postulated return of $442,500, if $360,000 of that was appropriated by the bank in satisfaction of part of the advance to Joel Investments Pty. Ltd. guaranteed by Maungold, there would be insufficient monies left to satisfy Mrs. Hudson's obligation to the bank.
It seems to me that there is no reason why the bank is not entitled to look to Maungold Pty. Ltd. for $360,000 under its guarantee in respect of the total indebtedness by Joel Investments Pty. Ltd. of $667,000.
It was pointed out by counsel for Mr. and Mrs. Hudson that Mrs. Hudson's guarantee, the guarantee of Maungold, and the mortgage given by Maungold over the vacant land on Hamilton Island, were all dated 19 January, and that the guarantccs of Mrs. Hudson and Maungold Pty. Ltd. are both limited to $360,000.
On 20 January the bank made available to Joel Investments Pty. Ltd. $360,000. That is one of the items referred to in the notice of demand. It was submitted that it was a compelling inference that the mortgage was given as security for the liability of the guarantors. It was submitted that in those circumstances the petitioning creditor, when it receives the proceeds of the sale of Maungoldls land, is obliged to apply it to the credit of the guarantors' obligations, and not generally to the total indebedness of Joel Investments Pty. Ltd.

I am unable to accept that submission.

In McLean v. Discount and Finance Limited (1939) 64 C.L.R. 312, Latham C.J. said at 328:-

"A creditor to whom guarantees have been given may

compel any surety to pay according to his contract. He is not bound to take any steps to distribute the burden among the sureties. Thus a surety who has guaranteed the whole of the debt may be compelled to pay the whole debt even though

there are other sureties.'

It was submitted on behalf of the bank that where there are a number of guarantors and one guarantor pays more than his share of the debt, that guarantor has a right of contribution against the other CO-guarantors. That of course is not disputed; equity will adjust the burden by allowing the guarantor who has paid more than his proper share to seek contribution from his CO-sureties. If authority be needed, see kllesrnere Brewery Company v. Cooper [l896 1 1 Q.B. 75 at 79, and James OrDonovan and John C. Phillips The Modern Contract of Guarantee (1985) at 471 et seq..

It seems to me that on the best view for the debtors there would not be sufficient to meet the judgment debts out of the realization of the assets after the bank, as it was entitled to do, had looked to Maungold Pty. Ltd. for $360,000.00 from the proceeds of the sale of the vacant land. In those circumstances, the factual basis for the submission is not made out. As I have already indicated, even if it were factually correct, I do not accept it to be a sufficient basis for declining to make a sequestration order.

Finally I turn to the other matters of a discretionary kind which were urged as founding a proper basis for declining to make the sequestration orders.

I have been troubled by the bank's conduct in relation

to this matter.	It entered into possession in December 1988 and
none of the assets has yet been sold. There is, it is true, an

unconditional contract to sell the unit for $310,000.00 under which settlement is to take place some time in August, but it seems to me that the bank has been less than diligent in relation to its obligations. Receivers costs have been incurred and are still being incurred. The market is declining. I suspect there has been something of a "junket' in relation to the occupation of the unit by an officer of the bank. It seems to me unfortunate, to put it no higher, that the bank, when given an opportunity of i selling the unit for $330,000.00 to Mr. Schweikert on terms, imposed conditions as to 30 days and 45 days which were very onerous on a prospective purchaser; it may be that an opportunity to sell at an advantageous price has been lost.

Notwithstanding those matters, however, it seems to me that I ought to make the sequestration orders that the petitions seek. If there is in truth a financial detriment suffered by Mr. and Mrs. Hudson by virtue of those matters, then that may be able to be remedied in other proceedings, but I ought not for those reasons decline to make the sequestration orders.

For these reasons, which tersely explain my view of the matters canvassed during the course of the evidence and submissions, I am satisfied that the requirements of the Act have been met in relation to the making of a sequestration order.

I note that David Lewis Clout, a registered trustee, has consented to act as trustee in the event of Mr. and Mrs. Hudson becoming bankrupt. I make a sequestration order against the

estate of John Beresford Hudson and I make a sequestration order	against the estate of Elizabeth Jane Hudson. I order that the
costs of and incidental to the petition, limited to a hearing of one day, be paid in accordance with the Act. I further order that the bank pay each of the debtor's costs of 23 May, 25 and 26 July 1989, to be taxed if not agreed.

I certify that this and tllc '2 pl~::ndi::g

pages arc a true copy c i the reasons ior

judgment herein of His Honoor

Mr. ;lustice Spender

Ass3ciats

Dated: 28 Issq. G, ovr