Re Smith, Peter Michael Ex Parte Abbotts Accountants Advisory Pty Ltd

[1997] FCA 447

IN THE FEDERAL COURT OF AUSTRALIA	)
)
GENERAL DIVISION, BANKRUPTCY DISTRICT	)     No. NG 7260 of 1997
)
OF THE STATE OF NEW SOUTH WALES	)

RE:		PETER MICHAEL SMITH
EX PARTE:		ABBOTTS ACCOUNTANTS ADVISORY PTY LIMITED [ACN 002 204 775]
CORAM:	EMMETT J
PLACE:	SYDNEY
DATED:	23 APRIL 1997

EX TEMPORE REASONS FOR JUDGMENT

There is before me a petition for the sequestration of the estate of Peter Michael Smith.  The petition is based upon a bankruptcy notice, the failure to comply with which gave rise to an act of bankruptcy on 26 September 1996.  When the petition came on for hearing, the debtor appeared in person and indicated that there were two grounds upon which he sought to oppose the making of a sequestration order. 

The first was generally based on the notion that Mr Smith was not insolvent.  The basis upon which that contention was advanced was that Mr Smith had entered into an arrangement in principle, which involved the construction of facilities for growing tomatoes and that if the project thereby contemplated was given effect, it would generate very substantial income to Mr Smith such as would enable him to meet all of his debts.

The evidence before me indicated that Mr Smith's debts were in excess of $600,000 although a very substantial part of that total was an amount owing to the Commonwealth Bank of Australia in excess of $500,000.  Mr Smith gave evidence that he had had some discussion with a bank officer who indicated that, if he was prepared to put a proposal beyond one which he had put earlier, the bank might be prepared to consider some deferral of its claim.  However, that bank has in fact filed a petition itself, although the petition apparently has not yet been served, and there is no indication that it does not intend to proceed with that petition.

The evidence indicated that Mr Smith is not at the moment in a position to discharge any of the liabilities which are disclosed and that he would only be in a position to do so if the project which he outlined is successful and in the meantime he has the support of his creditors. I can form no conclusion about whether that is so or not. The appropriate course, if that were Mr Smith's desire, would be to institute proceedings under Part X of the Bankruptcy Act 1966 (Cth) (“the Act”) whereby an arrangement might be entered into with his creditors that would have enabled him to undertake the project without having to discharge the liabilities which are presently due. I conclude, therefore, that the financial position of Mr Smith is not such as would stand in the way of the making of a sequestration order.

The second ground upon which Mr Smith sought to oppose the petition is that the judgment debt upon which the bankruptcy notice was based is such that I should go behind the judgment. It is of course very well established that a court sitting in Bankruptcy is entitled to go behind the judgment debt upon which a petition is based.  Prima facie the judgment debt is evidence of the indebtedness of the debtor to the petitioning creditor. 

Where the judgment debt arises as a result of a hearing on the merits, then the only basis upon which one would go behind the judgment is where there is clear evidence of fraud or the like. 

In this case, the judgment was entered by default. What I am about to say is derived, to a great extent, from statements made from the bar table rather than admissible evidence before me.  I will assume, however, that it would have been possible to establish the matters to which I will refer.  The debt, it appears, was for accounting services provided in connection with the establishment of a company to engage in a similar enterprise to that which I have already referred.  Mr Smith acknowledged that he retained the petitioners to perform the work but says that he did so on behalf of other parties intended to participate in the enterprise.

He says that he is not personally responsible for the debt but that a company, which has now been ordered to be wound up, is responsible for the debt. Mr Smith says that when the statement of liquidated claim was received, it was put aside with other claims made against the company and no steps were taken to defend the claim.  Subsequently, a decision was made to apply to have the judgment set aside. However, that application was dismissed by consent. Mr Smith says that he took advice in relation to that decision.  The advice related to the possibility of himself becoming bankrupt or engaging in proceedings under Part X.  Mr Smith says that for commercial reasons he decided to do neither.

When this matter came before the Registrar on 11 April 1997, the Registrar was presented with notice of objection on the ground to which I have just referred.  The Registrar, over the objection of counsel for the petitioner, considered some written material provided by Mr Smith and concluded that the objection should be dismissed. Apparently reference was made to the possibility that further application to set aside the judgment might be made.

Again I have been told from the bar table that an application was then made to the Local Court for the judgment to be set aside.  Mr Smith gave evidence on the hearing of that application.  He was represented by someone whom he described as the “duty barrister”.  That application was unsuccessful.  In those circumstances it seems to me that I do not have before me material that suggests that I should have any doubt about the justification for the judgment which has been entered against Mr Smith in favour of the petitioners.

I do not consider that the material which has been adduced in admissible form before me or the matters which have been asserted from the bar table would be sufficient to cast any doubt on the indebtedness of Mr Smith to the petitioners as evidenced by the judgment debt. In those circumstances, I do not consider there is sufficient doubt as to the indebtedness to refusing failing to make an order. I am satisfied that an act of bankruptcy has been committed as alleged in the petition. I am also satisfied as to other matters referred to in section 52 of the Bankruptcy Act. Accordingly, I make orders in accordance with the short minutes of order which I have dated with today's date, initialled and placed with the papers. I order that the exhibits be returned to Mr Smith.

I certify that this and the preceding three pages are a true copy of the Reasons for Judgment of his Honour Justice Emmett.

Associate:

Date:                  23 April 1997

Appearances:  

The applicant appeared in person.

Counsel for the respondent:                  R.G. Parsons

Solicitor for the respondent:                 Osborne Kitamura

Heard:  23 April 1997

Place:  Sydney

Decision:  23 April 1997