Richardson v Ford
[2017] FCCA 1280
•20 June 2017
FEDERAL CIRCUIT COURT OF AUSTRALIA
| RICHARDSON & ANOR v FORD | [2017] FCCA 1280 |
| Catchwords: BANKRUPTCY – Creditor’s petition – opposition – non-compliance with Bankruptcy Notice – respondent paid amount owing into lawyer’s trust account – applicants did not accept the amount owing due to allegations of respondent being insolvent – evidence demonstrates respondent unable to satisfy debts owed – sequestration order made. |
| Legislation: Bankruptcy Act 1966 (Cth), ss.30(1), 52, 156A(3) |
| Cases cited: Australia & New Zealand Banking Group Ltd v Foyster [2000] FCA 400 Picone v Velos [2007] FCA 1183 |
| First Applicant: | BEVERLEY ELSA RICHARDSON |
| Second Applicant: | WILLIAM RAYMOND RICHARDSON |
| Respondent: | TIMOTHY JAMES FORD |
| File Number: | SYG 3275 of 2016 |
| Judgment of: | Judge Smith |
| Hearing date: | 9 June 2017 |
| Date of Last Submission: | 9 June 2017 |
| Delivered at: | Sydney |
| Delivered on: | 20 June 2017 |
REPRESENTATION
| Solicitors for the Applicant: | Mr D. Fleming (Pigott Stinson) |
| Solicitors for the Respondents: | Mr R. Hughes (as agent) (Smyth Turner Wall) |
ORDERS
A sequestration order be made against the estate of Timothy James Ford.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT SYDNEY |
SYG 3275 of 2016
| BEVERLEY ELSA RICHARDSON |
First Applicant
WILLIAM RAYMOND RICHARDSON
Second Applicant
And
| TIMOTHY JAMES FORD |
Respondent
REASONS FOR JUDGMENT
On 27 April 2016, Bankruptcy Notice, BN190350 (Bidvest Bankruptcy Notice) directed to the respondent, Timothy James Ford was issued at the request of Bidvest Australia Ltd (Bidvest). The Bidvest Bankruptcy Notice was in respect of an unpaid judgment debt in the sum of $58,439.04. The respondent was served with Bidvest’s Bankruptcy Notice on 2 May 2016.
The respondent did not comply with Bidvest’s Bankruptcy Notice, or make any application to the Court, to have the Bankruptcy Notice set aside within 21 days after being served with Bidvest’s Bankruptcy Notice.
On 21 November 2016, Bidvest filed a creditor’s petition in this Court naming the respondent and Frederick George Pawlak as respondents to that petition.
On 16 December 2016, Bankruptcy Notice BN210994 (Applicants’ Bankruptcy Notice) directed to the respondent was issued by the applicants in respect of an unpaid judgment debt in the sum of $23,370.00.
The respondent was served with the Applicants’ Bankruptcy Notice on 21 December 2016.
The respondent did not comply with the Applicants’ Bankruptcy Notice, or make any application to the Court, to have the Applicants’ Bankruptcy Notice set aside within 21 days after being served with the Applicants’ Bankruptcy Notice.
On 24 January 2017, the Court ordered, by consent, that Bidvest’s creditor’s petition be adjourned to 21 February 2017 so as to allow the respondent time to arrange refinancing to pay out his creditors.
On or about 24 February 2017, Bidvest accepted an offer of payment in relation to the debt which the respondent owed to Bidvest.
On 24 February 2017, the respondent’s legal representatives, Smyth Turner Wall, contacted the applicants’ legal representatives by telephone, Pigott Stinson, to inform them that they held the amount which the respondent owed to the applicants in their trust account.
On 1 March 2017, Pigott Stinson sent a letter to Smyth Turner Wall rejecting the offer of payment from the respondent on the basis that the applicants did not believe that the respondent was solvent.
On 2 March 2017, Smyth Turner Wall wrote to Pigott Stinson to confirm that they had received funds and held the amount which the respondent owed to the applicants in their trust account. This letter also included an offer of payment of the debt which the respondent owed to the applicants.
On 6 March 2017, the applicants filed an interim application to be substituted as the petitioning creditors.
On 7 March 2017, District Registrar Wall ordered that:
(a) Bidvest be granted leave to withdraw from the proceedings
(b) the applicants be substituted as the applicants on Bidvest’s creditor’s petition;
(c) the applicants file an amended creditor’s petition on or before 21 March 2017;
(d) the respondent to file a notice of opposition and any affidavits in support by 28 March 2017; and
(e) the applicants file any evidence in reply by 4 April 2017;
(f) the matter be listed for hearing on 18 April 2017.
On 21 March 2017, the applicants filed an amended creditor’s petition with the Court and served it on the respondent.
On 31 March 2017, the respondent served a notice stating grounds of opposition to the application on the applicants. The grounds in the notice are (without alteration):
1)The Respondent is solvent.
2)The Respondent is ready, willing and able to pay the amount claimed by the Applicants and has offered to pay this amount to the Applicant from funds held for the Respondent in the Respondent’s solicitors trust account.
3)The Creditors Petition is propounded for reasons other than the solvency of the Respondent and is an abuse of process.
4)The Respondent objects to a trustee being nominated by the Applicants and requires in order to prevent any abuse that any trustee in bankruptcy if any is appointed, not be appointed or nominated by the Applicants.
On 18 April 2017, District Registrar Wall ordered that the proceedings be referred to the docket of a Judge of the Court.
The matter came before me for hearing on 9 June 2017.
Section 52 of the Bankruptcy Act1966 (Cth) (Bankruptcy Act) provides that, at the hearing of a creditor’s petition, the Court shall require proof of the following matters and, if satisfied with the proof of them, may make a sequestration order against the debtor:
Proceedings and order on creditor’s petition
(1)At the hearing of a creditor’s petition, the Court shall require proof of:
(a)the matters stated in the petition (for which purpose the Court may accept the affidavit verifying the petition as sufficient);
(b)service of the petition; and
(c)the fact that the debt or debts on which the petitioning creditor relies is or are still owing;
…
The amended creditor’s petition stated the following:
1)The respondent debtor owes the applicant creditors the amount of $23,370.00 for a judgment debt entered in the Federal Circuit Court of Australia on 12 December 2016.
2)The applicant creditors do not hold security over the property of the respondent debtors.
3)At the time when the act of bankruptcy was committed, the respondent debtor:
·was personally present in Australia;
·was ordinarily resident in Australia;
·had a dwelling house or place of business in Australia.
4)The following acts of bankruptcy were committed by the respondent debtor within 6 months before presentation of this amended petition:
a)The respondent debtor failed to comply on or before 23 May 2016 with the requirements of a bankruptcy notice served on him on 2 May 2016 or to satisfy the Court that he had a counter-claim, set-off or cross demand equal to or more than the sum claimed in the bankruptcy notice, being a counter-claim, set-off or cross demand that he could not have set up in the action in which the judgment referred to in the bankruptcy notice was obtained.
b)The respondent debtor failed to comply on or before 11 January 2017 with the requirements of a bankruptcy notice served on him on 21 December 2016 or to satisfy the Court that he had a counter claim, set off or cross demand equal to or more than the sum claimed in the bankruptcy notice, being a counter claim, set off or cross demand that he could not have set up in the action in which the judgment referred to in the bankruptcy notice was obtained.
5.The applicant creditors provide the following information, to the extent it is known to the applicant creditors, for use by the Australian Financial Security Authority:
a)any alias used by the respondent debtor – unknown;
b)the date of birth of the respondent debtor – 8 March 1956.
Each of those matters was established to my satisfaction by affidavit evidence and none was contested by the respondent.
Service of the petition, and the fact that the debt was still owing at the date of the hearing were also verified by affidavit and again were not contested. I am satisfied of each of the matters in s.52(1) of the Bankruptcy Act. The applicants are prima facie entitled to an order for sequestration.
Pursuant to s.52(2) of the Bankruptcy Act, the Court may dismiss the petition if:
(2)If the Court is not satisfied with the proof of any of those matters, or is satisfied by the debtor:
(a)that he or she is able to pay his or her debts; or
(b)that for other sufficient cause a sequestration order ought not to be made;
…
The respondent argued that he was solvent on the basis that he had a substantial surplus of assets over liabilities. In support of this assertion he relied on his affidavit sworn on 6 April 2017. The table at [7(i)] of that affidavit showed the following:
Assets
Paragraph Ref:
Whole/Half Interest
Amount
Tallwoods Golf Course
7 a & b
Whole
$3,650,000.00
13 Illusions Court, Tallwoods
7d
Half
$262,500.00
Pyrmont property
7f
Half
$1,125,000.00
Superannuation
7g
Whole
$300,000.00
Total gross assets
$5,337,500.00
Liabilities
Tallwoods Golf Course: Crown & Gleeson
7c
Whole
$802,000.00
13 Illusions Circuit [sic]; Liberty Finance
7e
Half
$166,000.00
Pyrmont property ING
7f
Half
$453,500.00
Operating Expense
Tallwoods7h
Whole
$35,000.00
Total Liabilities
$1,456,500.00
If this evidence were accepted, the respondent would have an excess of assets over liabilities in the amount of $3,881,000. However, I do not accept the evidence.
Critically, the amount owed to Crown & Gleeson in respect of the Tallwoods Golf Course was not $802,000 but $3,984,484.37 as at 17 May 2017. No doubt it is more than that now. This amount was revealed, not by the respondent, but from records produced under subpoena by Crown & Gleeson. This shows two things:
(i)the respondent has not been forthright about his financial position; and
(ii)even if I were to accept the balance of his evidence, the respondent’s liabilities would be $4,638,984.37 and the excess of assets over liabilities would only be $698,515.63.
However, even if the respondent does have an excess of assets over liabilities, it does not mean that he is able to pay his debts. As Hely J observed in Australian & New Zealand Banking Group Ltd v Foyster [2000] FCA 400 (ANZ), the respondent must also establish that the assets are available to be realised and that they are capable of ready realisation. There is no such evidence here.
The Tallwoods Golf Course is the largest of the applicant’s assets and is fully encumbered. The applicant’s other real property is jointly owned by the applicant’s wife and there is no evidence of any willingness on her part to quickly realise that property. Similarly, there is nothing to suggest that the applicant is currently entitled to the funds in his superannuation account (he is 61 years old) or, if not, that he has applied for release of those funds.
The respondent has given no evidence of his income or regular outgoings and I infer that any such evidence would not assist him.
The statement of account with Crown & Gleeson shows that the respondent has been in financial difficulties for over a year. He regularly dishonoured his payment obligations from February 2016 and has made no payments at all since 7 November 2016. Interest is accruing on the loan at the rate of over $100,000 per week. I am satisfied that the respondent is unable to meet his obligations in respect of that loan. As things stand, the interest on this loan will mean that his liabilities will exceed his assets within 6 weeks, if not sooner.
Finally, although it was not in dispute that the respondent has tendered payment of the amount owing to the applicants, that does not, in itself, establish solvency: Picone v Velos [2007] FCA 1183 at [57].
In those circumstances, I am not satisfied that the applicant can pay his debts.
The respondent also argues that the proceedings are an abuse of process. In his submissions at [15], the respondent claims that:
... the true purpose of the Petition is not to extract payment from the Respondent or to test the solvency of the debtor but for other purposes namely to remove the debtor’s control over the Tallwoods golf course owned by the Respondent that the creditor is keenly interested in and arguably to enable the creditor to either acquire or to at least influence through the trustee it seeks to have appointed, who would acquire the golf course from the bankrupt estate and probably for less than fair market value.
The argument that proceedings constitute an abuse of process is ordinarily made in support of an application for a permanent stay of those proceedings. The following principles in that context were summarised in Connellan v Murphy [2017] VSCA 116 at [54]:
…
1)In order to justify the grant of a stay, a defendant bears a heavy onus. A stay is ordinarily only granted in exceptional circumstances, because it effectively brings to an end litigation without adjudication.
2)The categories of abuse of process are not closed.
3)In particular, the concept of an abuse of process is not confined to cases in which, if the action were to proceed, the defendant would not receive a fair trial.
4)The fundamental test is whether, in the circumstances, the proceeding would be manifestly unfair to the defendant or would otherwise bring the administration of justice into disrepute among right-thinking people.
(Citations omitted)
Here, the respondent argues that the abuse of process would constitute another “sufficient cause” for which a sequestration order ought to be refused. The applicants did not suggest otherwise, but argued that there was no abuse of process in the circumstances of these proceedings. The parties did not suggest that the principles that arise in applications for a permanent stay of proceedings were not applicable to the present proceedings, and I will proceed on the basis that they are.
There appear to be two factual bases relied on to support this argument: first, that the applicants have refused to accept payment of the debt owing and, secondly, a series of emails concerning a dispute arising from the fact that a number of golf balls from the golf course have landed in the applicants’ property.
The first of these bases does not support the allegation of an abuse of process. It is well-established that a creditor is entitled to refuse to accept payment of a debt after a failure to comply with a bankruptcy notice: McIntosh v Shashoua (1931) 46 CLR 494 at 508 (Starke J); [1931] HCA 56; International Alpaca Management Pty Ltd v Ensor [1999] FCA 72 at [43] and ANZ at [7]. The reason given by the applicants for refusing to accept payment is their view that the respondent was insolvent. If the applicants were right, any payment might be void against a trustee appointed to the respondent’s estate as a consequence of a sequestration order.
I am also not satisfied that any animosity towards the respondent shown in the emails, supports the serious contention made by the respondent. In particular, there is nothing to suggest that the applicants’ purpose in these proceedings is to be able to buy the Tallwoods Golf Course cheaply.
For those reasons, I find that there is no other sufficient cause for refusing to make a sequestration order and there will be an order for the sequestration of the respondent’s estate.
The respondent’s remaining argument is that any trustee appointed as a consequence of any sequestration order ought not to have been nominated by the applicants. Although the respondent did not elucidate the authority of the Court to make such an order, there is authority for the proposition that there is power under s.30(1) of the Bankruptcy Act for the Court to decide whether a particular trustee will be appointed: Boral Montoro Pty Ltd v McLachlan [2007] FMCA 533 at [9] (Boral Montoro).
The appointment of a trustee in bankruptcy arises by operation of s.156A(3) of the Bankruptcy Act, rather than by any separate determination of the Court. While I have some reservations about the correctness of the decision in Boral Montoro, it is unnecessary for me to decide the issue because I would refuse the application even if it were correct.
The claim is based on the bare assertion that any trustee nominated by the applicants may not be able to deal properly with any sale of the golf course. There is no evidence to support that assertion and I reject it. Accordingly, as Scott Anthony Newton, a registered trustee, has given notice of his consent to act as trustee in the respondent’s estate, he will become trustee upon the respondent’s bankruptcy pursuant to s.156A(3) of the Bankruptcy Act.
Conclusion
For the reasons provided above, I will make an order of sequestration against the estate of the respondent.
I certify that the preceding forty-two (42) paragraphs are a true copy of the reasons for judgment of Judge Smith
Associate:
Date: 20 June 2017
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