Shirreff v Beck Legal Pty Ltd
[2010] FMCA 697
•10 September 2010
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| SHIRREFF v BECK LEGAL PTY LTD | [2010] FMCA 697 |
| BANKRUPTCY – Application that sequestration order be set aside and bankruptcy annulled. |
| Bankruptcy Act 1966, s.153B |
| Beck Legal Pty Ltd v Shirreff [2010] FMCA 5 Pollock v Deputy Commissioner of Taxation [1994] FCA 953 Re Frank; Ex parte Piliszky (1987) 16 FCR 396 Re Papps; ex parte Tapp (1997) 78 FCR 524 Re Scott (1975) 6 ALR 588 Samootin v Wagner [2008] FCA 1066 |
| Applicant: | AUSTIN DOUGLAS SHIRREFF |
| Respondent: | BECK LEGAL PTY LTD |
| File Number: | MLG731 of 2010 |
| Judgment of: | Whelan FM |
| Hearing date: | 16 August 2010 |
| Date of Last Submission: | 16 August 2010 |
| Delivered at: | Melbourne |
| Delivered on: | 10 September 2010 |
REPRESENTATION
| Counsel for the Applicant: | Applicant in person |
| Counsel for the Respondent: | Mr White |
| Solicitors for the Respondent: | Beck Legal Pty Ltd |
| Counsel for the Trustee: | Mr O’Brien |
| Solicitors for the Trustee: | Aitken Partners |
ORDERS
The application in this matter dated 18 May 2010 be dismissed.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT MELBOURNE |
MLG731 of 2010
| AUSTIN DOUGLAS SHIRREFF |
Applicant
And
| BECK LEGAL PTY LTD |
Respondent
REASONS FOR JUDGMENT
Introduction
This is an application by Mr Shirreff in which he seeks that the Sequestration Order made against him on 30 July 2009 be set aside and his bankruptcy annulled. He also seeks a declaration that section 153B of the Bankruptcy Act 1966 (Cth) (“the Act”) has been satisfied and the Applicant is solvent.
It is not entirely clear on what basis the Applicant seeks to have the sequestration order “set aside”, particularly given that he has already been unsuccessful in an application for review of the Registrar’s decision, which resulted in the Sequestration Order being affirmed by Burchardt FM on 3 March 2010 and he abandoned an appeal against that judgment. I have therefore proceeded on the basis that the Applicant seeks to have the bankruptcy annulled on the basis that the Sequestration Order “ought not to have been made”.
Background
The background to these proceedings, prior to the lodging of this application, is set out in the judgment of Burchardt FM and, in particular, at paragraphs 3 to 25 of that judgment.[1] Where the affidavit of Mr Shirreff of 18 May 2010 filed in support of this application is inconsistent with those paragraphs, I accept His Honour’s findings.
[1] Beck Legal Pty Ltd v Shirreff [2010] FMCA 58.
During the course of the proceedings, His Honour made a number of suggestions that the applicant seek legal advice. He notes in the ultimate paragraph of his judgment:
On reading the transcript I noted the number of times I have all but implored Mr Shirreff obtain legal advice. It remains very much in his interest to do so.[2]
[2] Ibid.
According to his affidavit material, the Applicant did seek legal advice following the judgment but appeared unrepresented at the hearing.
The Applicant contends that the Sequestration Order ought not to have been made because he was, and is, able to pay all his debts as and when they fall due and that this was the case at the date of making the Sequestration Order on 30 July 2009, at the date the Order was affirmed and at present.
The Applicant relied in support of this contention on the content of his affidavit of 18 May 2010 in which, at paragraphs 39 to 61, he sets out his income and outgoings; the income, expenditure, liabilities and assets of the business, “Aussie Shelving”; the income and assets of the business, “Kingfisher”; other sources of income; and the properties owned by him.
The Applicant also sought to rely on the Trustee’s Report of 3 May 2010.
The other evidence before the Court were the affidavits of the Trustee, David James Lofthouse. Mr Lofthouse had completed an affidavit dated 2 December 2009 in the proceedings before Burchardt FM. In that affidavit, he noted that Mr Shirreff had not completed a statement of affairs. It appears that such a statement was not completed until 9 April 2010. In the 2 December 2009 affidavit, Mr Lofthouse identified properties in Airport West, Campbellfield, Seymour and Coolaroo as belonging to the Applicant. The properties in Airport West, Campbellfield and Seymour were subject to a mortgage with Australian Securities Limited (ASL) and the property at Coolaroo was subject to a mortgage with RMBL Investments Pty Ltd (RMBL). As at 2 December 2009, the trustee was unable to say whether there would be sufficient funds available upon realisation of the bankrupt’s assets to pay the costs of administering the bankrupt’s estate and to pay the full amount of the bankrupt’s proved debts.
In his affidavit of 10 August 2010, Mr Lofthouse referred to the properties at Airport West, Coolaroo and Seymour as “the most significant assets of the estate”. In reference to the assets referred to by the Applicant stored on the Coolaroo and Seymour properties, Mr Lofthouse noted that there was currently an Enforcement Order issued by VCAT on application by the local council which refers to scrap, waste and hazardous material being unlawfully stored on the Seymour property. He was unable to determine what expenditure might be needed to put the Seymour property in a saleable condition or whether the sale of stock would cover this cost. He also noted that the Airport West property was subject to notices to comply issued by the Moonee Valley City Council in relation to the land being in an “unsightly, dangerous or detrimental state”.
The report by Mr Lofthouse noted that the Campbellfield property had been sold and the proceeds used to pay out part of the mortgage on the Coolaroo property, meet certain rates and taxes associated with the land and pay out part of the mortgage held by ASL.
In relation to the Seymour property, the Trustee was unable to ascertain a value of the property given its current condition. In relation to the Airport West property, Mr Lofthouse found that it had a value of $1,450,000.00 based on a valuation commissioned by ASL in October 2009 and was subject to a debt to ASL of $300,000.00.
In relation to the Coolaroo property, after payment to RMBL of $101,513.81 from the sale of the Campbellfield property, it was still subject to a secured mortgage to RMBL of $110,000.00 and had an estimated market value of $380,000.00.
The Trustee was unable to verify the amounts claimed by the Applicant in paragraph 41 of his affidavit with respect to Aussie Shelving. He was unable to verify any financial information with respect to Kingfisher.
Mr Lofthouse was also unable to verify the assets claimed by the applicant to have a total value of $800,000.00 consisting primarily of scrap steel and other recycling materials.
The Trustee’s report set out a total of $481,500.00 owing to secured creditors and based on investigations to date, a total of $111,204.20 owed to unsecured creditors. The total costs and expenses of the Trustee was approaching $100,000.00.
Mr Lofthouse expressed the view that there was sufficient equity in the Airport West, the Coolaroo and Seymour properties to raise finance to pay out the estate in full if the bankrupt, with his consent, was able to have such a proposal approved by a financier. Otherwise it would be necessary for the Trustee to sell one or more of the properties in order to achieve this.
Contentions
The Applicant contended that he was solvent at all times. He disputed the Trustee’s figures of what he owed to creditors. If the bankruptcy was annulled, he stated that he would work out what was owed, what the Trustee’s costs were and he would pay these out from the proceeds of the sale of the Campbellfield property. He made the application because he wanted to control the refinancing himself. When it was raised by the Court that his affidavit contained a lot of assertions but little evidence to establish those claims, he stated that even on the Trustee’s figures his assets exceeded his liabilities. When asked why he did not raise with the Court in prior proceedings that he was able to pay his debts, he stated that he did not think that he had to raise it because it was already in the affidavit of Mr Lofthouse.
Mr White, for Beck Legal Pty Ltd, took the Court through the history of the matter. He placed emphasis on the failure of the Applicant to take actions within the timeframe required; the fact that, as Burchardt FM noted, he had never in those proceedings asserted that he was solvent; and his conclusion that, “it was not possible to say what Mr Shirreff’s position is from the affidavit of the Trustee”. Mr White referred to the frequent statements in the Applicant’s affidavit about the lack of knowledge of various matters given as a reason for his inaction. He also referred to the fact that the Applicant, while recognising the importance of his Statement of Affairs, states in his affidavit that he completed that document in haste and now seeks to rely on the material in his affidavit where it is inconsistent with that document. Mr White also referred to the indeterminacy of items such as business acquisitions, goodwill, royalties and other intangible items where the Applicant claims a value. Mr White also referred to the list of unsecured creditors, a number of which the Applicant failed to mention in his previous statements. Mr White also drew attention to inconsistency in the Applicant’s statements about what he intended to do with respect to his debts should the applicant be successful.
Mr White referred the Court to the decision in Samootin v Wagner, a judgment of Flick J dealing with the application of s.153B.[3] He submitted that the Court must first consider whether a sequestration order ought not to have been made and then, if it is so finds, whether in the exercise of its discretion the bankruptcy should be annulled. The relevant time at which such an assessment is to be made is the time when the sequestration order is made although the Court may take into account later evidence of previously unknown facts.
[3] Samootin v Wagner [2008] FCA 1066.
Mr White submitted that the Applicant was not able to point to any evidence of previously unknown facts as at the date of making the order. He has simply asserted that he is in a position to pay his debts.
The Trustee neither consented to nor opposed the application.
Conclusions
The Applicant contends that the Sequestration Order should be set aside and his bankruptcy annulled because the Court should be satisfied that he is, and was, at all material times solvent. For the purposes of these proceedings, the material time is the time when the Sequestration Order was affirmed by Burchardt FM.
The Applicant has not argued any grounds for the “setting aside” of the Sequestration Order other than that he was solvent at the time the Order was made. It is not clear that any basis exists to “set aside” the Order. I have therefore proceeded on the basis that the Applicant seeks to have the bankruptcy annulled on the grounds that the Sequestration Order “ought not to have been made”.
The onus lies on the Applicant to satisfy the Court that the Sequestration Order ought not to have been made because he was at the relevant time solvent. In Pollock v Deputy Federal Commissioner of Taxation,[4] Carr J set out the relevant considerations in determining an application for annulment:
1. It is the applicant for annulment who alleges, and it is therefore for him to bring himself within the section and satisfy the Court, that the sequestration order ought not to have been made.
2. The Court to whom the application is made seeks to ascertain the actual state of affairs at the time when the sequestration order is made.
3. In order to ascertain that actual state of affairs the Court hearing the application for annulment looks at the facts that were before the Court which made the sequestration order and at any other facts that were not before that Court but are shown on the hearing of the application for annulment to have been in existence when the sequestration order was made.
4. Having considered all the facts so looked at, the Court determines whether on those facts the applicant has satisfied it that the sequestration order ought not to have been made.
5. If it is so satisfied, the Court is not bound to annul the sequestration order but must consider in all the circumstances of the case whether it ought to be annulled.[5]
[4] Pollock v Deputy Commissioner of Taxation [1994] FCA 953.
[5] Ibid at 30.
The facts before Burchardt FM at the time of affirming the Sequestration Order included that Mr Shirreff had not completed a Statement of Affairs and although it appeared that he owned a number of properties, it was not possible to say what his position was from the affidavit of the Trustee. At the time, the valuations provided by ASL disclosed a valuation on the Airport West property of $1,440,000.00 and on the Campbellfield property of $1,550,000.00. The value of the Coolaroo and Seymour properties was stated to be unknown. Aside from some funds held in trust by ASL, the Trustee was unable to place a value on any other assets. On 19 November 2009, the amount ASL alleged was owed to them by the Applicant was $1,848,419.08. RMBL also had a registered mortgage over the Coolaroo property in the sum of $300,000.00. There were, in addition, unsecured debts to seven named creditors totalling $99,321.00.
At the time of making his second affidavit on 10 August 2010, the property at Campbellfield had been sold. As this is a matter which postdated the making of the Sequestration Order, it cannot be considered for the purpose for seeing whether the Order ought to have been made.[6] The Trustee placed a value of $400,000.00 on the Seymour property although he stated that, “this does not actually represent the current realisable value of the property because of the need to comply with the Enforcement Order”. He placed a value of $380,000.00 on the Coolaroo property but again qualifies this stating that, in his view, “this does not actually represent the current realisable value of the property because there may be the need to incur substantial costs to put the property in good order”.
[6] Re Scott (1975) 6 ALR 588 per Lucas J.
The Trustee assessed the Applicant’s unsecured debts to 12 named creditors at $111,204.00. The Trustee was unable to verify the existence and/or value of items contained in the Applicant’s affidavit for which he claimed a value of $2,000,000.00. These included goodwill, stock in trade and intellectual property, as well as scrap metal and equipment.
In addition to the secured creditors, ASL and RMBL, the Trustee also included as a secured creditor the National Australia Bank (NAB) which the Applicant owed $71,500.00.
It is notable that in excess of 12 months after the original Sequestration Order was made by the Registrar, it is still not possible to accurately describe the financial position of the Applicant at the time the order was originally made or later affirmed by Burchardt FM. The Applicant has not assisted himself in this. His own affidavit was vague and contained a number of estimates which were supported by no material evidence. His co-operation with the Trustee in bankruptcy has been less than exemplary. I note in this regard his failure to lodge a Statement of Affairs until 9 April 2010 and the difficulty the Trustee attests to in getting the Applicant to provide relevant information.
At best, from the information before me, it can only be stated with any certainty that at the relevant time the Applicant had properties (Airport West and Campbellfield) with a total assessed value of $2,990,000.00. While the Coolaroo and Seymour properties may have had a value of up to $780,000.00, the evidence would suggest that to realise those amounts may have required substantial costs in putting the properties into a saleable state. The Applicant’s total secured liabilities at that time were $2,109,919.00 and his unsecured liabilities were $111,204.00.
The Trustee has expressed the view in his August 2010 affidavit, after sale of the Campbellfield property, that there is sufficient equity in the remaining properties to raise sufficient finance to pay out the estate in full. This may have also been the position in June 2009 and March 2010 but from the material before me, I am unable to come to such a conclusion. The Applicant’s assets may have exceeded his liabilities but it is not clear that these were realisable within a reasonable period of time.
A person who seeks an annulment carries what O’Loughlin J described in Re Papps; Ex parte Tapp as a “heavy burden”.[7] On the material before me, including those matters about which Burchardt FM had no knowledge at the time of making his decision, but excluding events such as the sale of the Campbellfield property, which have occurred since, I am not satisfied that the Applicant has established that the Registrar was bound not to make the Sequestration Order and Burchardt FM was bound not to affirm that decision. I note in this regard that Flick J, in Samootin v Wagner, quoted the judgment of Fisher J in Re Franke; Ex parte Piliszky[8] who concluded, where in considering the wording of the predecessor provision to s.153B:
In my opinion it can be said that a judge "ought" not to have made an order only if he was "bound" not to make the order. In circumstances where it was open to a judge to make an order in the exercise of his discretion, it can only be said he "ought not to have made the order" if none of the circumstances could justify the making of an order.[9]
[7] Re Papps; Ex parte Tapp (1997) 78 FCR 524.
[8] Re Frank; Ex parte Piliszky (1987) 16 FCR 396.
[9] [2008] FCA 1066 at 34.
Further, even if I was satisfied that the Applicant had established his solvency at the time the Sequestration Order was made, there are circumstances which would weigh against exercising my discretion in favour of the Applicant. These considerations would include the following:
·The Applicant’s conduct of this matter, in particular his failure to oppose the making of the original Sequestration Order by the Registrar; the inadequacy of the information placed before Burchardt FM despite several adjournments being granted to him; his failure to lodge a statement of affairs until April 2010; and the paucity of the material which he chose to place before the Court on the hearing of this application.
·The fact that until the filing of this application, the Applicant had never asserted that he was solvent.
·The fact that the Applicant continues to dispute some of the debts found by the Trustee in Bankruptcy and has made only vague and contradictory proposals about how, if his application was to be granted, he would pay his creditors.
Mr Shirreff has not aided himself in the way he has chosen to conduct these proceedings. He acknowledges in his affidavit his past errors which arose from his failure to seek legal advice. He did initially engage solicitors in this matter but chose to appear at the hearing unrepresented. This has not assisted either the Applicant or the Court.
For these reasons the application in this matter is dismissed.
I certify that the preceding thirty-six (36) paragraphs are a true copy of the reasons for judgment of Whelan FM
Associate:
Date: 10 September 2010
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