Re Thurwood, Frank Ex Parte GIO Workers Compensation (Victoria) Ltd

[1997] FCA 188

Catchwords

Orders

IN THE FEDERAL COURT OF AUSTRALIA)

BANKRUPTCY DISTRICT OF THE STATE)No VP 218 of 1996

OF VICTORIA)

RE:FRANK THURWOOD

(Judgment Debtor)

EX PARTE:GIO WORKERS COMPENSATION (VICTORIA) LIMITED (ACN 060 346 509) AUTHORISED AGENTS FOR THE VICTORIAN WORKCOVER AUTHORITY

(Judgment Creditor)

DEPUTY COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

(Supporting Creditor)

Judge Making Order:Ryan J

Date of Order:28 February 1997

Where Made:Melbourne

MINUTES OF ORDER

THE COURT ORDERS:

1.That the period at the expiration of which the petition shall lapse shall be 24 months expiring on 18 March 1998.

2.That the hearing of the petition be adjourned to a date to be fixed not earlier than 5 May 1997.

3.That the costs of the petitioning creditor and the supporting creditor of the hearing on 26, 27 and 28 February 1997 be treated as part of the petitioning creditor's costs in the event that a sequestration order is subsequently made on the petition referred to in paragraph 1 of this order and otherwise be taxed and paid by the debtor.

4.That the costs of W.A. Freightlines Pty Ltd of the hearing on 26 February 1997 be reserved.

5.That liberty be reserved to either party to apply to Ryan J on not less than 72 hours notice in writing to the other party.

NOTE:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules

Reasons

IN THE FEDERAL COURT OF AUSTRALIA)

BANKRUPTCY DISTRICT OF THE STATE)No VP 218 of 1996

OF VICTORIA)

RE:FRANK THURWOOD

(Judgment Debtor)

EX PARTE:GIO WORKERS COMPENSATION (VICTORIA) LIMITED (ACN 060 346 509) AUTHORISED AGENTS FOR THE VICTORIAN WORKCOVER AUTHORITY

(Judgment Creditor)

DEPUTY COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

(Supporting Creditor)

Coram:Ryan J

Date:28 February 1997

Place:Melbourne

REASONS FOR JUDGMENT

RYAN J: By a petition filed on 18 March 1996 and served on 8 April 1996, the petitioning creditor, GIO Workers Compensation (Victoria) Limited, has sought a sequestration order against the debtor based on his non-compliance with the bankruptcy notice dated 22 September 1995. The bankruptcy notice in turn was based on a judgment entered in the Magistrates' Court at Melbourne on 3 August 1995 in the sum of $25,230.09. The petitioning creditor in its bankruptcy notice also claimed interest of $383.22. On 7 May 1995 the debtor filed a notice of intention to appear in which he recited as the sole ground of opposition "The debtor is insolvent".

The petition was adjourned on 7 May 1996 to 4 June 1996 and was again adjourned to 18 June 1996 to allow the debtor to obtain documents necessary to complete his affidavit. On 18 June 1996, the Registrar was advised that a receiver of the debtor's property had been appointed at the instance of First For Finance Pty Ltd and that the debtor had applied to this Court in proceedings numbered VG 343 of 1996 for removal of the receiver. The Registrar thereupon adjourned the petition to 15 July 1996. On that date the Registrar was informed of progress which had been made in relation to proceedings VG 343 of 1996 and further adjourned the petition to 25 November 1996. It was then adjourned by consent to 4 February 1997.

The petition was then further adjourned for hearing as an opposed petition to Wednesday, 26 February 1997. In the meantime the debtor had filed an affidavit sworn on 18 June 1996 in which he deposed that he carried on business under the name "Roadair" as trustee for the Thurwood family trust and was also a director of Tarraby Holdings Pty Ltd. Through both entities he was engaged in the provision of transport services and was also an employee and manager of Bartral Pty Ltd which was engaged in a similar business. He went on to depose:

5.With the exception of the petitioning creditor, and the 2 supporting creditors who appeared on 4 June 1996, none of my other unsecured creditors is pressing me for payment in such a way that I would not be able to continue trading. This is so even though a number of the creditors have issued legal proceedings against me and even have judgments against me.

6.My wife and I are jointly indebted to BP Australia Ltd pursuant to a guarantee in support of a company called Tarraby Holdings P/L through which the linehaul freight business was previously conducted. The company has judgment against us in the sum of $100,000.00 approximately. Messrs Corrs Chambers Westgarth act for the company. I believe it has taken no further action against me or my wife to execute on that judgment but that it is currently reserving any rights it has against us in that respect.

Exhibited to that affidavit was a statement of assets and liabilities of the debtor both personally and as trustee for the FT Thurwood Trust. That disclosed an excess of assets over liabilities of $4679 after assigning a value of $260,000 to a linehaul contract with Transport Linehaul Pty Ltd and asserting a debt due from that company of $200,000. As well, the assets included "PPS Credits - 1995/1996 Year $252,792.00".

By a further affidavit sworn on 24 February 1997 the debtor referred to the statement of assets and liabilities exhibited to his earlier affidavit and indicated that he had lost the contract with Linehaul Freight Services because of the appointment of the receiver and manager. That affidavit goes on to assert:

As a result of the contract being terminated, I claim substantial damages from the receiver-manager and First For Finance Pty Ltd. I estimate my damages arising from the loss of this contract and option for renewal to be approximately $520,000.00 applying the formula Mr Smith used in note 7 to the statement. The damage I have sustained as a result of the financier's and/or receiver's wrongful actions has been exacerbated by the receiver's failure to remit group tax during the period of the receivership which has increased the claim of the Deputy Commissioner of Taxation referred to in Clause 11 of my affidavit.

On 26 February 1997, with the consent of Counsel for the respondents to that proceeding, I ordered, amongst other things, in proceeding number VG 343 of 1996:

1.Applicant have leave to amend application and statement of claim dated 17 June 1996 on or before 12 March 1997.

2.Respondents file and serve amended defence on or before 26 March 1997.

...

5.Otherwise matters be fixed for trial on 28 April (estimate 2-3 days).

It is further indicated in the debtor's second affidavit that "The debt due from Transport Linehaul Pty Ltd is presently unknown".

The Mercedes Benz car disclosed in the statement of assets and liabilities as having a net value of $31,000 is now claimed to be owned by the debtor's wife and to be subject to a lease. A Nissan CMF-88L vehicle, registered number VVI 2CU shown as having a net value of $12,000 is now said to have been seized by CBFC Finance Company, as is an Isuzu vehicle registered number VV88 B7 which was shown as having a negative net value of $8,000. Another Isuzu vehicle, VV89 BZ, was shown in the statement of assets and liabilities as having been written off and as having a nil value. As to that vehicle the debtor has sworn:

The receiver manager currently holds the insurance proceeds of $29,500.00 from the destruction of this vehicle in a trust account pending the resolution of the litigation between us.

That reference, I have since been told by Counsel for the debtor, was mistaken and the insurance proceeds are referable to another vehicle which was also written off in the course of the business conducted by the debtor. In his later affidavit the debtor claimed to be still entitled to a credit from the Deputy Commissioner of Taxation under the prescribed payments scheme in the sum of $252,792. However, an affidavit has been sworn by David Ian Johnston, an officer in the Legal Collection Section of the Australian Taxation office, deposing that, as at 31 October 1996, the debtor was indebted to the Deputy Commissioner for unpaid group tax and penalties in the sum of $302,987.85. (In the statement of affairs exhibited to his first affidavit the debtor's liability to the Australian Taxation Office had been estimated at $338,000.)

As to the prescribed payments scheme credits, Mr Johnston exhibited to his affidavit a copy of the debtor's tax return for the year ended 30 June 1996 in which a credit was sought of only $161,434. Mr Johnston contends that there is no basis on which any credit to the debtor under this head could exceed $161,434 and points out that a credit of $10,243 has already been allowed to the debtor in respect of the tax year ended 30 June 1995. Mr Johnston further deposed that the Deputy Commissioner has commenced winding up proceedings returnable in the Supreme Court of Victoria on 26 March 1997 against Bartral Pty Ltd of which the debtor is employed as manager at a salary of $500 per week and from which, according to the debtor, he resigned as a director on 24 February 1997.

In a second affidavit sworn and filed at the end of the hearing yesterday, Mr Johnston has deposed that the debtor remains liable to the Deputy Commissioner for $7,650 being the unpaid balance due under a direct penalty notice for unremitted group tax issued to the debtor in his capacity as a director of Bartral Pty Ltd. It is further asserted that Bartral Pty Ltd has made further defaults in remittal of group tax for October, November and December 1996 totalling $10,650.

The debtor was cross-examined as to his financial affairs by Mr Nolan of Counsel for the petitioning creditor. That cross-examination was necessarily curtailed because of the limited time which the Court was able to afford the application for an adjournment on 26 February 1997 and at 9.30am yesterday morning. By pointing to liabilities which have been conceded by the debtor and others which the debtor was unable to refute unequivocally, Mr Nolan was able to demonstrate to my reasonable satisfaction that, even if the debtor succeeds in his action against the receiver and manager, his assets are unlikely to accede his liabilities.

Accordingly, if my discretion were confined to an assessment of the probability of the debtors establishing solvency at an adjourned hearing after 29 April 1997, I would be constrained to refuse an adjournment. Such a refusal would be impelled by the consideration that if it is almost certain that a sequestration order will be made on a creditor's petition, the petition should be heard without delay so that if a sequestration order is made a trustee in bankruptcy can, amongst other things, make a detached assessment of the utility of continuing to prosecute a pending action.

However, the discretion is not so confined, see e.g. Field v Commercial Banking Co of Sydney Ltd (1978) 22 ALR 403. In exercising it in the unfettered way suggested by the language of s 33(1)(a) of the Act, I have decided on balance, and not without hesitation, to accede to the debtor's application for an adjournment. In coming to that conclusion I have not been unmindful that the petitioning creditor strongly supported by the Deputy Commissioner has pressed for an immediate sequestration order.

I have also had regard to the fact that almost 12 months have now elapsed since the issue of the petition. However, the consequences for the creditors of that fact can be mitigated by an order which I propose to make renewing the petition. In the same context, it is to be borne in mind that in the latter half of 1996 adjournments totalling in the order of 6 months were allowed to the debtor apparently with a view to his prosecuting to a conclusion his action against the receiver and manager. That conclusion in the light of the fixture of the trial for 28 April this year will occur in the foreseeable future.

On the evidence I can discern no significant detriment which is likely to accrue to the petitioning creditor, the supporting creditor, creditors generally or the public if a sequestration order be not made in the meantime. The ability of the debtor to continue to trade unprofitably through Bartral Pty Ltd is likely to be curtailed by the winding up petition pending against the company and it can be presumed that the debtor's present financial circumstances are widely known in the road transport industry.

On the other hand a sequestration order will operate as an immediate stay of the proceedings against the receiver and manager. It is true that a trustee in bankruptcy will be required to assess the costs and benefits of continuing that litigation and to decide whether to persevere in its prosecution. However, some costs to the presumptive bankrupt estate would be incurred in that exercise and I am by no means persuaded that a trustee could, by 28 April, be in a position to pursue the action with the same enthusiasm and understanding of the issues as the debtor.

The debtor, I infer, has already invested a considerable amount of time and costs in that action. Even if it fails entirely there is not likely to be a significant diminution of the debtor's distributable estate. In all the circumstances therefore, I consider, on balance, that the debtor should be allowed an opportunity to see his action at first instance through to the end. I shall accordingly order:

1.That the period at the expiration of which the petition shall lapse shall be 24 months expiring on 18 March 1998.

2.That the hearing of the petition be adjourned to a date to be fixed not earlier than 5 May 1997.

3.That the costs of the petitioning creditor and the supporting creditor of the hearing on 26, 27 and 28 February 1997 be treated as part of the petitioning creditor's costs in the event that a sequestration order is subsequently made on the petition referred to in paragraph 1 of this order and otherwise be taxed and paid by the debtor.

4.That the costs of W.A. Freightlines Pty Ltd of the hearing on 26 February 1997 be reserved.

5.That liberty be reserved to either party to apply to myself on not less than 72 hours notice in writing to the other party.

I certify that this and the preceding eight (8) pages are a true copy of the Reasons for Judgment of his Honour Justice Ryan.

Associate:

Date:

Counsel for the Debtor:Mr P.K. Searle

Solicitors for the Debtor:Nevett Ford

Counsel for the Creditor:Mr J. Nolan

Solicitors for the Creditor:Mills Oakley

Date of Hearing:27 February 1997

Date of Judgment:28 February 1997