Re Proberts, Robert Ex Parte Proberts, Robert v Lane, Peter Frank

[1997] FCA 311

IN THE FEDERAL COURT OF AUSTRALIA      )
GENERAL DIVISION   )            No. NG 7153 of 1997
BANKRUPTCY DISTRICT NEW SOUTH WALES)

RE:  ROBERT PROBERTS
  Judgment Debtor

EX PARTE:               ROBERT PROBERTS
  Applicant

PETER FRANK LANE
  Respondent

CORAM:  Lehane J
PLACE:    Sydney

DATE:     8 April 1997

EXTEMPORE REASONS FOR JUDGMENT

LEHANE J:

This is an application by the debtor, Mr Robert Proberts, to set aside a bankruptcy notice dated 9 December 1996.  The notice was served about two months ago.

The ground of the application appears in affidavits of Mr Roberts and of his solicitor read in support of the application.  It is that the court should be satisfied with security offered by the judgment debtor to the judgment creditor.  The security offered and rejected by the judgment creditor is a bill of sale over a trotting race horse.  The horse is, according to the judgment debtor's affidavit, owned by two corporations of which he is a director and which he deposes are ready and willing to grant to the judgment creditor the bill of sale proposed.  The proposal is that the term of the bill of sale will be three months.  At the conclusion of the three months, if the judgment debt is not paid, the judgment creditor would be entitled to enforce its rights under the bill of sale, for example, by selling the horse so as to recover the amount of the judgment debt and, presumably, interest.

There is evidence of the value of the horse.  The evidence is in the form of an auctioneer's opinion in a letter dated 2 July 1996 to the effect that its value is $75,000.  That is a sum substantially greater than the amount presently payable under the judgment.

A number of issues arise on this application.  One, which Mr Proberts’ solicitor put in the forefront of his argument, is as to the period for which the security is offered, or perhaps more accurately, the period during which the rights of the creditor to recover by way of enforcement of the security are to be postponed.  In the course of agrument, I expressed a tentative view that if security were otherwise satisfactory and adequate then the fact that enforcement was postponed for a period of three months might not necessarily result in the court not being satisfied that the judgment debt was adequately secured.  It is, however, unnecessary to express a firm view on that matter for reasons which will appear.

In deciding whether it ought to be satisfied with security offered, the court, in my view, must be satisfied that the judgment creditor will receive through the security a clear and unencumbered security interest in the property which is offered.  Here the property is a horse, the owners of which are said to be two companies.  There is undisputed evidence that the interest of one of those companies in the horse is already the subject of a debenture by which it charges all its assets by way of fixed and floating charge as security for the payment of certain of its indebtedness.  The solicitor for Mr Roberts has said that he has instructions that it would be possible to obtain a release of the horse from the security created by that charge, but there is no evidence before me to that effect: particularly, no evidence of anyone with authority on behalf of the chargee to the effect that the chargee is willing to permit a prior ranking security to be given.

Secondly, however, it is in the nature, in my view, of the property over which the security is offered that it is not easy for an applicant to satisfy the court that there is an unencumbered interest which will be the subject of the security, so that the court and the judgment creditor may be confident that there are and will at relevant times be no prior interests.  Certainly it is true that in general terms charges and other security interests created by corporations over chattels which they own are subject to the regime of registration under the Corporations Law.  The evidence discloses that the interest of one of the corporate owners is encumbered; there is no evidence as to whether the interest of the other is encumbered, by way of charges registered by the Australian Securities Commission or otherwise.

In any event, however, one matter which may be stated with confidence about the regime of registration of charges under the Corporations Law is that it is not exhaustive of interests which may be outstanding in property owned by a company other than interests created by way of registrable charge.  For example, to take perhaps the most obvious instance, trusts of property, particularly chattels owned by a corporation, may be created without registration and while in many circumstances a security by way of the creation of a legal interest such as is proposed here, might prevail over prior equitable interests, it is difficult to see why that would necessarily be so where, as here, the legal interest is offered by way of security for an existing debt.  In any event I think it is fair to say that apart from the applicant's evidence as to the registered title to the horse and the evidence of the registered charge there is no evidence before me on the basis of which I could be satisfied that the title offered is indeed an unencumbered title which can promptly be mortgaged as charged as security for the judgment debt.

Thirdly, the respondent made the point that a race horse is perishable property: serious injury and possible destruction are, he said (and I suppose I am permitted to know) distinct possibilities.

I was referred to the decision of Jenkinson J in Re Reicher; Ex parte Commissioner of Taxation (1990) 34 FCR 206 where the principles applicable to an application such as this were discussed. The applicant sought to distinguish his Honour's decision on the basis that it was clear on the evidence that there were in that case adverse interests plainly asserted in relation to the property over which security was to be offered. It may, however, be noted that the property was land: in relation to land, questions of title and priorities are resolved much more easily than they are in relation to chattels.

For those reasons in my view the application must be dismissed.

The order of the court is that the application is dismissed with costs.

It should, I think, include reserved costs in relation to this application.

I certify that this and the preceding 4 pages are a true copy of the Reasons for Judgment of the Honourable Justice Lehane.

Associate:

Dated:8 April 1997

Heard:  8 April 1997

Place:  Sydney

Decision:8 April 1997

Appearances:  Mr D E Quinn of Quinn & Quinn appeared for the applicant

Mr R Booker, solicitor, appeared for the respondent.