Suncorp Metway Insurance Limited v Piccone
[2005] FMCA 73
•8 February 2005
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| SUNCORP METWAY INSURANCE LIMITED v PICCONE | [2005] FMCA 73 |
| BANKRUPTCY – Application for annulment of bankruptcy. Bankruptcy Act1966, ss.5, 55, 153B, 303 Clyne v Deputy Commissioner of Taxation (1984) 154 CLR 589 |
| Applicant: | SUNCORP METWAY INSURANCE LIMITED |
| Respondent: | MARK PICCONE |
| File No: | BRG273 of 2003 |
| Delivered on: | 8 February 2005 |
| Delivered at: | Brisbane |
| Hearing date: | 16 December 2003 |
| Judgment of: | Rimmer FM |
REPRESENTATION
| Counsel for the Applicant: | Mr Bickford |
| Solicitors for the Applicant: | Walsh Halligan Douglas |
| Counsel for the Respondent: | Mr McQuade |
| Solicitors for the Respondent: | McInnes Wilson |
ORDERS
That the application be dismissed.
That the parties have liberty to apply in relation to costs within 14 days.
AND THE COURT NOTES
That the matter was suitable for an advocate pursuant to Rule 21.15
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT BRISBANE |
BRG273 of 2003
| SUNCORP METWAY INSURANCE LIMITED |
Applicant
And
| MARK PICCONE |
Respondent
REASONS FOR JUDGMENT
Proceedings
The Applicant, Suncorp Metway Insurance Limited, seeks an order pursuant to section 153B(1) of the Bankruptcy Act annulling the bankruptcy of the Respondent, Mark Piccone. The Applicant is a person aggrieved within the meaning of section 303 of the Act. The Applicant seeks his annulment on the grounds that the debtor’s petition presented by Mr Piccone on 16 October 2002 ought not to have been presented.
The Respondent opposes the application.
The Official Trustee in Bankruptcy is the trustee of the Respondent’s bankrupt estate. The requirements of Part 45 of the Federal Magistrates Court Rules have been complied with and the annulment application has been served on the Official Trustee. The affidavit of Paul Frederick Peterson filed 5 December 2003 established that six creditors (including the Applicant) were listed in the debtor’s petition of October 2002 and that all other five creditors have been given the required notice in Form 155 and was served at least 14 days before the hearing date fixed for the application.
The issues
The issues for determination are:
a)Whether the presentation of the debtor’s petition by the Respondent is an abuse of process;
b)Whether the Respondent was insolvent at the time he presented the debtor’s petition;
c)Whether the Respondent reasonably believed himself to be insolvent at the time of presentation of the petition; and
d)Whether, in the facts established, the Court should exercise it’s discretion to annul the bankruptcy.
Material relied upon:
a)Application filed 22 May 2003;
b)Statement of Claim filed 22 May 2003;
c)Defence filed 20 June 2003;
d)Affidavit of Paul Frederick Peterson filed 4 July 2003;
e)Affidavit of Mark Piccone filed 11 July 2003;
f)Affidavit of Paul Frederick Peterson filed 17 July 2003;
g)Affidavit of Mark Piccone filed 24 November 2003;
h)Affidavit of Paul Frederick Peterson filed 5 December 2003;
i)Affidavit of Paul Frederick Peterson filed 15 December 2003;
j)Amended Defence filed by leave 16 December 2003;
k)Affidavit of Paul Frederick Peterson filed by leave 16 December 2003.
Background
On 12 February 1993 the Respondent, Mark Piccone, was the driver of a vehicle which collided with another vehicle at Old Cleveland Road, Camp Hill. The statutory predecessor to the Applicant was the licensed insurer of Mr Piccone’s vehicle.
The Respondent was made bankrupt on his own petition on 14 September 1993.
A Mr Robert Ward brought proceedings in the Supreme Court of Queensland against the Applicant, Suncorp (as licensed insurer of Mr Piconne’s vehicle) seeking personal injuries and other losses suffered by him in the motor vehicle accident of February 1993. Those proceedings were compromised on 9 October 2000 by payment by Suncorp to Mr Ward of $367,500.00 for damages and $42,500.00 for costs.
On 20 May 2000, Mr Piccone was involved in a further motor vehicle accident when his stationery vehicle was struck by a vehicle driven by a Ms Michaela Dowling. Suncorp was the licensed insurer of Ms Dowling’s vehicle.
On 2 February 2001, Mr Piccone commenced proceedings in the District Court of Queensland against Ms Dowling (as the insured person) and Suncorp (as the insurer) seeking damages for personal injury and other losses. By virtue of section 552 of the Motor Vehicle Insurance Act, such a claim must be brought against the insured person and the insurer however any judgment must be given against the insurer and not the insured person.
In his Statement of Loss and Damages dated 27 November 2001 in the personal injuries action, the Respondent claims total damages of $428,018.50 plus interest and costs.
On 19 March 2002 Suncorp wrote to Mr Piccone advising him of the Settlement of Claim of Mr Ward and of the fact that Suncorp intended to recover the damages of $367,500.00.
On 25 June 2002, Suncorp filed an Amended Defence and counterclaim in the proceedings brought by Mr Piccone in the District Court. In that counterclaim, Suncorp alleged as follows:
a)That at the time of the collision in which Mr Ward was injured, Mr Piccone was under the influence of intoxicating liquor;
b)That the collision was caused by the negligence of Mr Piccone;
c)That Mr Ward was injured and suffered loss and damage;
d)That Mr Ward commenced proceedings that were compromised by Suncorp by the payment of $367,500.00;
e)That the driving of Mr Piccone whilst under the influence of intoxicating liquor or drug contributed in a material degree to the circumstances in which Suncorp agreed to pay the settlement sum to Mr Ward;
f)That Mr Piccone contravened Regulation 13(2)(a) of the Motor Vehicle Insurance Regulations 1968; and
g)That Suncorp was entitled to recover the sum of $367,500.00 from Mr Piccone pursuant to Regulation 17 of the Motor Vehicle Insurance Regulations.
In his answer to the counterclaim Mr Piccone filed on 4 July 2002, he relied on the following:
a)Denied he was under the influence of liquor;
b)Denied that he had been negligent and blamed the collision on an unidentified vehicle;
c)Denied the fact of Mr Ward having been injured;
d)Alleged that if Mr Ward was injured and suffered loss that such was occasioned by his trying to enter the BMW motor vehicle whilst it was on fire;
e)Did not admit the fact, and compromise of Mr Ward’s proceedings;
f)Denied any liability to pay Suncorp;
g)Asserted that Suncorp’s claim was:
i)Statute barred; and
ii)Extinguished by virtue of Mr Piccone’s earlier bankruptcy on 14 September, 1993.
This debtor’s petition now under consideration was presented by Mr Piccone on 16 October 2002. It was accepted that day by Insolvency and Trustee Service Australia under section 55(4) of the Bankruptcy Act.
In his Statement of Claim of Affairs supporting his debtor’s petition, Mr Piccone outlined that his gross income for the previous 12 months was $29,000.00. He estimated that his gross income for the next 12 months would be $20,000.00 to $30,000.00. He listed his creditors and the amounts he owed as follows:
| Suncorp Metway Insurance Limited | $367,500.00 |
| AGC/Charter Mercantile Agency | $5,300.00 |
| Department of Taxation | $3,375.00 |
| Queensland Courts (unpaid fines) | $1,500.00 |
| Child Support | (Approximately) $5,000.00 |
| Harvey & Associates | $1,000.00 |
The law
Section 153B provides:
(1) If the Court is satisfied that a sequestration order ought not to have been made or, in the case of a debtor’s petition, that the petition ought not to have been presented or ought not to have been accepted by the Official Receiver, the Court may make an order annulling the bankruptcy.
(2) In the case of the debtor’s petition, the order may be made, whether or not the bankrupt was insolvent when the petition was presented.
If the presentation by a debtor of a debtor’s petition amounts to an abuse of process as provided for in section 55 of the Bankruptcy Act, it can be said that under section 153B, that the petition ought not to have been presented and that the powers exists for the Court to annul the bankruptcy as held in Clyne v Deputy Commissioner of Taxation (1984) 154 CLR 589.
It is a well accepted principle that in order for an applicant to succeed in an application under this section, the applicant must establish both that their debtor’s petition ought not to have been presented or accepted AND that it is proper for the Court to exercise its discretion (see comments of Katz J in Ozer v Australian Liquor Marketers Pty Ltd v Pascoe (Unreported) FCA 5 October 1999, paragraph 17, Delph Sing v Wood (1918) 25 CLR 497, March v Tregurza (1963) 109 CLR 1).
Therefore, even if the applicant is able to establish the wrongful intention on the part of the bankrupt, the Court has a discretion as to whether or not it will set aside the sequestration order particularly when there is a suggestion that the bankrupt may not be solvent (McDonald v Official Trustee [1999] FLC 1303; Layton v Westpac Banking Corporation (2000) 181 ALR 603).
It does not constitute an abuse of process where a person who is insolvent, or who reasonably believes he or she is insolvent, presents a petition despite the fact that he or she is motivated to do so “to protect himself from the evils he might otherwise suffer” (Re Motter; ex parte Motter v The Official Receiver (1977) 29 FLR 406 @ page 415).
The onus of proving the abuse of process is upon the person alleging the abuse. That onus is a heavy one. The person alleging an abuse of process must show that the predominant purpose of using the process was one other than for which it was designed. Further, a person is entitled to take advantage of an entitlement or benefit the law gives. If the immediate purpose is within the scope of a legislative purpose, then the ultimate purpose cannot constitute an abuse of process when the purpose is to bring about a result which the law provides in that person’s favour (Williams v Spautz (1992) 174 CLR 509 @ pp. 529; 526-527).
Similarly, it is not an abuse of process for an insolvent debtor to take advantage of the statutory exemption from divisible property of the fruits of a personal injuries action by presenting a debtors petition (Re Heenan; Ex parte Cousins v Official Receiver (1992) 39 FLR pp. 428, 434).
Where the applicant seeks to rely on the fact that at the date of presentation of the petition the debtor was solvent to establish an abuse of process the Court must be satisfied that the debtor was in fact solvent and that the debtor did not reasonably believe himself to be insolvent (Re Moncanda; ex parte Moncanda v Official Receiver (1986) 11 LRR @ 208; Re Heenan (Supra) @ p. 436).
Further, the applicant must establish that the bankrupt presented his debtor’s petition for a purpose, which is foreign to the Bankruptcy Act and which was his predominant purpose in presenting the petition.
Insolvency
A person is solvent if, and only if, the person is able to pay all the person’s debts, as and when they fall due. A person who is not solvent is insolvent (section 5 of the Bankruptcy Act).
The general test of an ability to pay debts is set out in Saudel v Porter (1966) 115 CLR @ 670 where Barwick J said:
“Insolvency is expressed in section 95 as an inability to pay debts as they fall due out of the debtors own money. But the debtors own moneys are not limited to his cash resources immediately available. They extend to moneys which he can procure by realization by sale or by mortgage or pledge of his assets within a relatively short time – relevance to the nature and amount of the debts and to the circumstances, including the nature of the business of the debtors. The conclusion of insolvency ought to be clear from a consideration of the debtor’s financial position in its entirety and generally speaking ought not to be drawn simply from evidence of a temporary lack of liquidity. It is the debtor’s inability, utilizing such cash resources as he can command through the use of his assets to meet his debts as may fall due which indicates insolvency. Whether that state of his affairs has arrived is a question for the Court and not one as to which expert evidence may speak to the likelihood of any of the debtor’s assets or capacities yielding ready cash in sufficient time to meet the debts as they fall due”
It is the ability of the debtor to demand cash resources through the use of his or her assets. The debtor is in a position to pay his or her debts within the meaning of the section when he or she can pay immediately, in the sense of a reasonable time, all of the debts which he or she owes. This inquiry involves a consideration of the ability to command cash resources through the use of his or her assets (Trevaskis v DFC of Taxation (1993) ATC 5037 @ 5040).
The Court must look at the level of the debtors recurrent expenses and his/her ability to repay debts out of his/her recurrent earning or otherwise in addition to whether he/she has cash resources from assets which might be readily realized to meet debts or utilized to obtain borrowings against in order to pay debts (Ex parte Lakatos v Deputy Commissioner of Taxation (1996) 33 ATC 145 @ 148).
The question also arises as to when a debt obligation is due.
The correct principles to be applied are those stated by Palmer J in Southern Cross Interiors Pty Ltd v Deputy Commissioner of Taxation (2001) 20 ACLC 1513 @ 1521; 39 ACSR 305 @ 316-317 as follows:
“1. The commercial reality that creditors will normally allow some latitude in time for payment of their debts does not, in itself, warrant a conclusion that debts are not payable at the times contractually stipulated and have become debts payable only on demand.
2. In assessing insolvency, the Courts act on the basis that a contract debt is payable at the time stipulated for payment unless there is an agreement for an extension of the time stipulated for payment.
3. The onus is on the applicant to prove that the respondent’s debts were not due because a creditor was not pursuing a debtor.”
Applicant’s submissions
The Applicant advances the following arguments:
a)The Respondent was not “insolvent when he presented his petition on 16 October 2002”;
b)That the Respondent did not reasonably believe that he was insolvent when he presented his petition;
c)In those circumstances, the presentation of the petition was an abuse of process and it ought not have been accepted.
Further, it is submitted by the Applicant that the debts purportedly owing to AGC and Harvey & Associates were not “due” because the Respondent had executed irrevocable authorities wherein he agreed to have those debts paid from the damages obtained in his personal injuries claim and therefore the Respondent could not have reasonably have believed that those debts were due and owing at the time he filed his debtor’s petition.
Further, the Applicant submits that there is no evidence that the Commissioner of Taxation, the Child Support Agency or the Queensland Department of Justice were actively pursuing the Respondent for payment of debts as at the date of presentation of the debtor’s petition. They submit that the respondent’s evidence is that the Commissioner of Taxation has written off that tax debt. However it is clear that the decision to write off the tax only was made after the respondent became bankrupt.
In any event, it is submitted by the Applicant that the debts to Child Support and the Queensland Department of Justice were not provable debts and there was no reason for those agencies to actively pursue those amounts or be concerned about the Respondent’s bankruptcy because they have certain known policies or practices in relation to how and when they will or will not pursue those debts
The Applicant submits that the Suncorp counterclaim has been defended by the Respondent with liability denied and that this amount cannot be pursued as a debt unless and until the counterclaim is allowed to proceed and judgment on the counterclaim is obtained in the Supreme Court.
The respondent submits that at the time that the respondent presented his debtors petition all those debts that were listed in his statement of affairs were “due and payable”. They submit that those debts and obligations did not cease to be due and payable simply because there may be a policy or practice of the Child Support Agency and QLD Justice not to take action against certain people or to seek another of a number of remedies that may have been available under legislation in the case of the unpaid fines. They submit that clearly the respondent had those debts to pay or serious consequences would flow to him and in that sense they were properly considered by him to be due and owing at the time of presenting his petition.
They submit that at the time of presenting his petition the respondent was insolvent. He had no assets of significant value to realise to pay his debts and insufficient income to meet his debts and obligation when they feel due. They submit that in reality he had debts which totalled $382,805.30 and his only significant asset was his vehicle an old 1072 Datsun with a value of $500.00. He had superannuation of $2,653.25 which is not available to pay creditors. His gross income was estimated to be between $20,000 and $30,000 as his tax returns establish and he was unable to work to full potential as a result of the difficulties he had as a result of injuries he sustained in a motor vehicle accident.
It is submitted that it is appropriate for the respondent to have formed the view that he did not have sufficient income and resources to pay his ongoing recurrent expenses and to meet his debts and obligations given the evidence as to his financial position at the relevant time.
In relation to the Suncorp debt of $367,500.00 it is submitted that the respondent was served with a letter on 19 March 2002 stating that Suncorp intended to claim against him that sum. They submit that there is no doubt on the evidence that the respondent could not pay that sum of money.
In June 2002 the applicant sought to recover that sum as a debt due and owing but unpaid as provided for in Regulation 17 of the Motor Vehicle Insurance Regulations. That regulation specifically provides that the claim of the applicant may be recovered by way of action as a debt due and owing but unpaid. It is clearly a debt due and owing and was so at the time that the respondent presented his petition.
Relevant findings
I am satisfied that at the time that the respondent presented his petition that all of those debts identified in his statement of affairs were due and owing by him. Clearly he owed his child support obligations and they are expressed in the Child Support Registration and Collection Act 1988 to be a debt due and owing to the Commonwealth. Whilst as a practice the collection agency at Child Support may have a certain policy does not change this position. The debt is pressing as it accumulates significant rates of penalties and interest on unpaid debts. It is a legal duty and obligation of a separated parent to pay child support for their children as assessed. It is immaterial that this is not a “provable debt”. If the legislation intended that insolvency be determined by reference only to provable debts then it would stipulate that as the test to be applied. It does not. It refers to debts and obligations due and payable and not provable debts due and payable.
Further, simply because a consequence of not meeting traffic fines may be that SPER will chose to take action to cancel a person’s licence rather than actively pursue unpaid fines does not mean that that debt is not pressing or due. It has a serious consequence to a person to lose a drivers licence and the debt is still one that they are legally obliged to pay.
The debt for taxation was not written off until after the presentation of the debtors petition by the respondent and clearly at the time that he presented his petition it was a debt due and payable.
With respect to the debt due and owing to Suncorp under Regulation 17 of the Motor Vehicle Insurance Regulations, that regulation determines that the amount that was claimed by Suncorp against the respondent was recoverable by way of action as a debt due and owing but unpaid. Clearly the applicant was then pursuing recovery of that debt in the counter claim filed by them. This had been commenced in June 2002 and that was the case at the time of presentation of the debtors petition by the respondent on the 16 October 2002. Clearly therefore it was a debt due and owing by the respondent when he presented his petition.
I accept that the respondent reasonably believed that he could not pay those debts from either realising assets or from his income. On the evidence before me as to his financial position in October 2002, which is the relevant date to make such an inquiry, he could not form any other reasonable view than that he had no reasonable prospects of defending the applicants claim. The evidence establishes clearly that he was under the influence of alcohol at the time that his accident occurred.
He admitted in his statement of affairs filed with respect to his earlier bankruptcy that he had been in a motor vehicle accident on
12 February 1993 and admits that he was “at fault”. He has been convicted and sentenced to a term of imprisonment, which he has now served arising from that accident and the fact that he was under the influence of alcohol was a significant part of the seriousness of that offence. It is very clear that he would have no reasonable prospects of defending the applicants claim against him under the Motor Vehicle Insurance Regulations and he states he had received advice to that effect from his legal advisors.
The fact that the consequence of his insolvency at the time of presenting the debtors petition puts the applicant in a position where they are unable to recover their debt or even part of it as a “set off” to the amount of damages they may or may not be required to pay to the respondent for the injuries he sustained in the second accident where they are also the licensed insurer because of the fact that the bankruptcy legislation makes the damages for personal injuries protected from claims in the bankruptcy does not make the decision that the respondent was entitled to make on any interpretation of his financial affairs that he was insolvent and then as a consequence in a position where he needed to resolve this position by presenting a debtor’s petition, an abuse of process.
As I have found that the debtor was insolvent at the time of presentation of the petition and that it was not an abuse of process, I am satisfied that the debtor’s petition should not be annulled and that I should not grant the orders requested by the applicant in these proceedings. I dismiss the application. I order that the applicant should pay the respondents costs pursuant to Part21, rule 21.10 of the Federal Magistrates Court Rules. I certify that the matter was suitable for an advocate pursuant to Rule 21.15.
I certify that the preceding forty-nine (49)paragraphs are a true copy of the reasons for judgment of Rimmer FM
Associate: Alexandra Adsett
Date: 8 February 2005
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