SMITH v Baycorp Collections PDL (Australia) Pty Ltd

[2013] FCCA 2373

FEDERAL CIRCUIT COURT OF AUSTRALIA

SMITH v BAYCORP COLLECTIONS PDL (AUSTRALIA) PTY LTD & ANOR [2013] FCCA 2373

Catchwords:
BANKRUPTCY – Application to set aside sequestration order or to annul – applicant deposing to realisable assets – matter adjourned to enable applicant to realise assets and pay creditor. 

Legislation:
Bankruptcy Act 1966 (Cth), ss.33, 52(1), 52(2), 153B, 178

Rotstein & Associates Pty Ltd v Slaveski [2010] FCA 493

Applicant: WENDY SMITH

First Respondent: BAYCORP COLLECTIONS PDL (AUSTRALIA) PTY LTD (A.C.N. 119 478 778)

Second Respondent: PETR VRSECKY (AS TRUSTEE OF THE PROPERTY OF WENDY SMITH, A BANKRUPT)

File Number: MLG 899 of 2013

Judgment of: Judge Burchardt

Hearing date: 9 October 2013

Date of Last Submission: 9 October 2013

Delivered at: Melbourne

Delivered on: 9 October 2013

REPRESENTATION

Counsel for the Applicant: Mr Cahill

Solicitors for the Applicant: Peter Cahill Solicitor

Counsel for the First Respondent: Ms McCredden

Solicitors for the First Respondent: White Cleland Pty Ltd

Counsel for the Second Respondent: Mr Cull

Solicitors for the Second Respondent: ICA Lawyers

ORDERS

1. The matter be adjourned to this Court for mention before Judge Burchardt on 6 November 2013 at 9.30 am. 

2. The parties’ costs be reserved. 

FEDERAL CIRCUIT COURT OF AUSTRALIA

AT MELBOURNE

MLG 899 of 2013

WENDY SMITH

Applicant

And

BAYCORP COLLECTIONS PDL (AUSTRALIA) PTY LTD (A.C.N. 119 478 778)

First Respondent

PETR VRSECKY (AS TRUSTEE OF THE PROPERTY OF WENDY SMITH, A BANKRUPT)

Second Respondent

REASONS FOR JUDGMENT

(Revised from transcript)

1. On 24 June 2013 a Creditor’s Petition was lodged. It was based upon a judgment of the State Magistrate’s Court given on 25 February 2013 by which the creditor received judgment for approximately $14,500 against the debtor together, of course, with statutory interest on a continuing basis. The requirements of the Court’s Rules were complied with, and also r.4.06 of the Bankruptcy Rules. Indeed, matters relating to s.52(1) of the Bankruptcy Act 1966 (“the Bankruptcy Act”) have never been in issue and are not now so.

2. On 30 July 2013 Registrar Allaway made a sequestration order and on 20 August 2013 an Application for Review was filed.  That application was, of course, prompt.  An Affidavit in Support was filed by the debtor which deposed, amongst other things, that she had survived in recent years by running a cleaning business which had generated an income of approximately $380 a week, but that had ceased when she injured herself on 14 May 2013.  She injured her knee and has been on sickness benefits of $125 per week since then. 

3. The affidavit indicated that she was the owner of two properties.  I may say that it was not perhaps entirely clear on an initial reading of her affidavit, but it is clear that she does own two properties, which have a total equity of approximately $390,000.  A rental property at a place called Lockwood is rented out for $290 per week and there is a mortgage of some $430 per week.  The property in which the debtor lives is unencumbered as best I understand it. 

4. The debtor also has a debt to Lion Finance Pty Ltd of some $5,630 which is being repaid at $25 per fortnight.  That is a very long-term prospect but Lion Finance Pty Ltd, apparently, are happy with it.  The applicant deposes, and I see no reason to doubt, that she has suffered from depression for much of the last 30 years and has not been able to attend in a proper way to her affairs.  She did not, as a result, contest the Court case brought against her by the creditor, nor did she do anything, despite being served with a Bankruptcy Notice or Creditor’s Petition.  The affidavit deposed paragraph 10, and I will read this out:

   “I seek to have the Sequestration Order set aside on the basis that under Section 52(2) of the Bankruptcy Act, having regards to the nature of my financial position, that I am solvent. I have a redraw facility in respect of the Commonwealth Bank Mortgage Loan and I did have the capacity at any time during the course of the demand for payment by the Creditor, through to the service of the Petition to draw down and borrow further monies from the Commonwealth Bank to make any payment. I have been paying Lion Finance $25.00 per fortnight by arrangement made approximately two years ago.”

5. On 11 September 2013 the applicant lodged a further affidavit.  She deposed, relevantly, that her bank repayments in respect of the mortgage to which she had referred were up to date and that her repayments for Lion Finance Pty Ltd were also up to date.  Exhibit WS7 to that affidavit shows bank records which, relevantly, attest to what are described as accumulated special repayments as at 20 August 2013 of $46,654.40.  On 24 September 2013 an affidavit by Pallav Lodha was sworn by the creditor.  This deposed that the original debt was not some $1,500 as asserted by the applicant to Harvey Norman, but a debt of some $986.  The exhibit PL-1 shows other antecedent debts over $4,000. 

6. I should say that it should be noted that on their face those documents are clear.  There is really, for these purposes, no doubt in my mind that the applicant’s indebtedness did not arise out of a single purchase that she allowed to accrue interest over a lengthy period of time, but a number of other debts as well.  I emphasise, given that these events go back as far as 2006, I make no criticism of the applicant in regards to any failure of memory. 

7. The affidavit of Ms Lodha also discloses a very substantial number of attempts by the creditor to contact the applicant and discuss the matter of her indebtedness with her.  Put shortly, I think I can say that in the light of all the affidavit material filed a posited challenge to the original Magistrate’s Court judgment indicated by counsel on behalf of the debtor in the event that the sequestration order is set aside seems to me extremely unlikely ever to proceed or, if it does proceed, to be successful.  The business records going back to 2008 would seem to me to be as close to impregnable as might be imagined. 

8. On 4 October 2013 the trustee filed an affidavit.  I note that the applicant had failed to complete a Statement of Affairs, albeit I note that was clearly done on legal advice, but it is a statutory obligation and I note it would not have taken long to complete given the applicant’s fairly simple financial position as indicated in her materials.  The trustee also raised the applicant’s failure to file tax returns between 2002 and 2005 but, as I indicated on the previous occasion, I accept for these purposes that the applicant was on Centrelink payments at the time and with no obligation to file tax returns accrued and, more importantly, it is far more probable than otherwise that she has no extant tax liabilities for that period. 

9. I will briefly recapitulate the submissions made by the parties.  The applicant’s counsel sought that the sequestration order be set aside or, in the alternative, that the bankruptcy be annulled.  Of course, this is a hearing de novo. I would indicate, given the materials filed, that I am quite satisfied as to matters in s.52(1) of the Bankruptcy Act and, indeed, those have never been put in issue. The real issue is the question of solvency. The applicant says she will revisit the quantum of the original debt if the sequestration order is set aside, though, as I have indicated, I think that that sounds like a very arid exercise on her behalf. The applicant says rightly that she is up to date with her credit payments to both Lion Finance Pty Ltd and the Commonwealth Bank. She says that she is well capable of paying her debts as and when they fall due and points to the redraw facility in this regard.

10. The applicant objected to the participation in the proceeding of the trustee, but in the circumstances I have described, where the applicant has failed to comply with her statutory obligation to file a Statement of Affairs, albeit in circumstances otherwise generally explained, nonetheless, the trustee has in all these circumstances a right to be heard.  The creditor relied upon the written submissions filed.  Counsel pointed to the fact that the applicant had made no proposal to realise the assets to which she refers. 

11. I note that the applicant’s affidavit says that the redraw facility has always been available, but she has not deposed that she would apply it to her debts.  I read paragraph 13 of the creditor’s submissions:

    “In the submission of the petitioning creditor, the information provided by the bankrupt is insufficient to establish solvency for the purposes of the proceeding for the following reasons:

    e.  her stated weekly income is insufficient to meet her stated weekly expenses - she states that she “tops up” her payment to the bank from her financial resources, but deposes to only having financial resources of $800;

    f.   she shows no ability or intention to realise her assets within a relatively short period of time;

    g.  she has insufficient liquid assets to meet the claims of her admitted unsecured creditors;

    h.  she relies on the assistance of her children to meet household bills (paragraph 4 of First Affidavit);”

12. The trustee’s submissions pointed to the failure of the applicant to serve an affidavit upon the trustee, a matter to which I do not propose to pay any further attention, and the failure of the applicant to provide a Statement of Affairs. 

13. Turning to my own consideration of the matter, if one makes every assumption in the applicant’s favour she is solvent, in other words, if one assumes that she has no tax liability arising from years 2002 to 2005, and if one further assumes that the accumulated special repayments are, indeed, available as a redraw I note the creditor rightly says that the applicant has the onus of proof but arguably the applicant’s first affidavit goes far enough, in my view, as regards to the special accumulated payments.  She has not, after all, been required for cross-examination. 

14. But it should be noted that s.52(2) of the Bankruptcy Act gives the Court a residual discretion. Solvency is not the end of the matter. In my view, the Court should not exercise its discretion in the debtor’s favour. First, the applicant clearly owes the money as is made plain from exhibit PL-1 and has owed it for a very long time. She has owed this money since 2008. Next, she has failed to take any steps to pay it, albeit that I accept that she has been depressed. Finally, she has evaded and prevaricated for years before proceedings started as is shown by the material annexed to Ms Lodha’s affidavit.

15. What I am going to do in these circumstances, however, is to adjourn the matter for four weeks. Section 33 of the Bankruptcy Act gives the Court very broad powers in relation to adjournments and the discretion is not confined, as to which see the judgment of Bromberg J in Rotstein & Associates Pty Ltd v Slaveski [2010] FCA 493. Here I will give the applicant time to pay the creditor and she will have to sort out the question in a sensible way as to what the costs of the creditor in bringing these proceedings are. In other words, I am giving her a fair opportunity to make good her assertion that she can pay her debts as and when they fall due.

16. If she does this, I will annul the bankruptcy.  I note that the Application for Review seeks such relief as the Court thinks proper in the alternative and it seems to me that is broad enough to grant this aspect of the application, which I understood to be put as a secondary position, in any event.  On one view, annulling the bankruptcy might be thought reasonably to be inconsistent with not setting it aside now, but this latter outcome arises from the applicant’s conduct in relation to the debt.  In other words, it is her failure to discharge her debts and her failure properly to deal with her affairs that has persuaded me that it is inappropriate to set the bankruptcy aside. 

17. If the debt is discharged clearly the balance shifts, but I would not be minded to set the bankruptcy aside; I would rather annul it pursuant to s.153B of the Bankruptcy Act. It is the applicant’s conduct that caused the sequestration order. If there are any difficulties with the trustee’s charges or conduct, the trustee’s costs can be taxed in the ordinary way or, if felt appropriate, an application under s.178 of the Bankruptcy Act could conceivably be brought.

18. This is a practical resolution and ultimately gives everybody, provided that the applicant does what I infer she says she will, something of what they want, and it avoids the immediate vesting of her properties in the trustee which would, of course, be very damaging to her interests.  So what I am going to do is adjourn the matter for four weeks and reserve costs. 

I certify that the preceding eighteen (18) paragraphs are a true copy of the reasons for judgment of Judge Burchardt.

Associate: 

Date:  3 February 2014