Taiaroa v Thomas
[2021] FedCFamC2G 28
•10 September 2021
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 2)
Taiaroa v Thomas [2021] FedCFamC2G 28
File number(s): MLG 887 of 2020 Judgment of: JUDGE MCNAB Date of judgment: 10 September 2021 Catchwords: BANKRUPTCY – review of a registrar’s decision – application to set aside sequestration order – hearing de novo – no reason to go behind the judgment which forms the basis of the bankruptcy notice – respondent does not have a reasonably arguable cross-claim to justify adjourning the creditor’s petition – respondent is insolvent – application for review dismissed – sequestration order made – applicants’ and supporting creditor’s costs to be taxed and paid from the estate of the respondent. Legislation: Bankruptcy Act 1996 (Cth) ss 43, 52.
Federal Circuit Court of Australia Act 1999 (Cth) s 104.
Federal Circuit Court Rules 2001 (Cth) r 20.03.
Limitation of Actions Act1974 (Qld) s 10AA.
Uniform Civil Procedure Rules 1999 (Qld) r 671.
Cases cited: Australia and New Zealand Banking Group Ltd v Foyster [2000] FCA 400
Bechara v Bates [2021] FCAFC 34
Bryant v Commonwealth Bank of Australia (1994) 217 ALR 251
Conlan v Mladenis [2007] FCA 1129
Sandell v Porter [1966] HCA 28
Stratton v Bowles (No.2) [2015] FCA 43
Thomas v Taiaroa & Anor [2020] FCCA 3524
Tomlinson v Ramsey Food Processing Pty Ltd [2015] HCA 28
Division: Division 2 General Federal Law Number of paragraphs: 51 Date of last submission/s: 14 April 2021 Date of hearing: 14 April 2021 Place: Melbourne Counsel for the Applicants: Mr Trewavas Solicitor for the Applicants: DSA Law Pty Ltd The Respondent: Appearing in Person Supporting Creditor: SLF Lawyers ORDERS
MLG 887 2020 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 2)
BETWEEN: KERI TAIAROA
First Applicant
LLL NOMINEES PTY LTD
Second Applicant
AND: LUKE THOMAS
Respondent
ORDER MADE BY:
JUDGE MCNAB
DATE OF ORDER:
10 SEPTEMBER 2021
THE COURT ORDERS THAT:
1.The application for review filed by the Respondent on 15 February 2021 be dismissed.
2.The estate of Luke Andrew Thomas be sequestrated under the Bankruptcy Act 1996 (Cth).
3.The Applicants’ costs, and the Supporting Creditor’s costs, including reserved costs, be taxed and paid from the estate of the Respondent debtor in accordance with the Bankruptcy Act 1966.
Note: The form of the order is subject to the entry in the Court’s records.
Note: This copy of the Court’s Reasons for judgment may be subject to review to remedy minor typographical or grammatical errors (r 17.05(2)(g) Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 17.05 Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth).
REASONS FOR JUDGMENT
Judge McNab:
INTRODUCTION
By an interlocutory application filed on 15 February 2021, the Respondent seeks, pursuant to s104 of the Federal Circuit Court of Australia Act 1999 (Cth) (“the FCCA Act”), to review a decision of the Court (by Registrar’s Order) made on 28 January 2021 (but stamped 4 February 2021), where the Court ordered as follows:
1. The estate of Luke Andrew Thomas be sequestrated under the Bankruptcy Act 1966.
2. The applicant creditors’ costs, and the supporting creditor’s costs, including reserved costs, be taxed and paid from the estate of the Respondent debtor in accordance with the Bankruptcy Act 1966.
The Court notes that the date of the act of bankruptcy is 12 December 2019.
The Court also notes that a consent to act as trustee signed by Daniel Peter Juratowitch has been filed under s156A of the Bankruptcy Act 1966.
The Respondent seeks final orders that:
(1)the orders of Judicial Registrar Ryan made on 28 January 2021 be set aside pursuant to s104(3) of the FCCA Act; and
(2)the originating application filed by the Applicants on 13 March 2020 seeking a sequestration order against the Respondent pursuant to s43 of the Bankruptcy Act 1996 (Cth) (“the Bankruptcy Act”) be set aside.
This review proceeding is conducted as a hearing de novo and the Court begins afresh and exercises for itself any discretion decided or exercised by the Registrar: see r20.03 of the Federal Circuit Court Rules 2001 (Cth); see also Conlan v Mladenis [2007] FCA 1129 at
[4] – [5]. I also have regard to the principles set out by the Full Court in Bechara v Bates [2021] FCAFC 34 at [27]:
27. Thus, relevant to the matter before us, the following is, and has been since the mid-1990s, clear about the nature of a de novo hearing by way of review of a sequestration order in bankruptcy made by a registrar:
(a) The application for review leads to a hearing de novo of the creditor’s petition.
(b) The hearing (or rehearing) of the creditor’s petition is not prosecuted by the debtor (applicant for review) but by the creditor in the proceeding in which the registrar’s order was made.
(c) The application for review is a demand that the claim for relief (the sequestration order) be heard by a judge.
(d) The onus is upon the creditor to prosecute its petition. The only onus of the debtor/bankrupt against whose estate a sequestration order has been made is to prove either solvency or any other sufficient cause under s 52(2) of the Bankruptcy Act 1966 (Cth).
(e) An appreciation of the above considerations makes it evident that summary or default judgment terminating an application for review is highly likely to be misconceived and founded upon a misconception that the applicant for review has an onus to prosecute an application or to show error in the approach of the registrar.
BACKGROUND
This matter has a considerable history in the Federal Circuit Court of Australia (“the FCCA”), the Federal Court of Australia (“the FCA”) and the Supreme Court of Queensland (“the SCQ”). This Court has the benefit of the background in this matter as set out in:
(1)Registrar Ryan’s decision in the FCCA made on 28 January 2021 of which there is a transcript; and
(2)his Honour Judge Jarrett’s decision delivered on 22 December 2020 in other FCCA proceedings of this matter: see Thomas v Taiaroa & Anor [2020] FCCA 3524 (“Thomas v Taiaroa”).
In this matter, the act of bankruptcy relied upon by the Applicants is the non-compliance by the Respondent with a bankruptcy notice served upon him on 21 November 2019 (“the bankruptcy notice”). The bankruptcy notice refers to a debt of $11,547.24 relating to a costs judgment obtained by the Applicants against the Respondent in the SCQ on 11 November 2019.
By way of background, the dispute between the parties relates to La La Land Byron Bay Pty Ltd (“the company”), which operated a bar and nightclub in Byron Bay, New South Wales. The First Applicant was a shareholder and former director of the company. The Respondent was a creditor and shareholder in the company. He was also the licensee and manager of the bar and nightclub from December 2014 to September 2015, and was a former director of the company until he was removed from that position on 18 September 2015.
In September 2015, a dispute arose between the First Applicant and the Respondent as to the control of the company. The Respondent claims that in February 2015 the First Applicant made a verbal threat to him that he would liquidate the company. The Respondent alleges that in
July 2015, the First Applicant told him that he did not want him to manage the bar and night club, and again threatened to liquidate the company. The Respondent refused to step-down from his role as the manager of the bar and nightclub. In September 2015, as set out at [16] of Judge Jarrett’s decision:
16. […] The [Respondent] says that he received an offer from the first [Applicant] and Mr Raftopoulos to purchase the applicant’s shares in La La Land for $400,000. He declined the offer. He alleges that on 25 September, 2015 the [Applicant] “fraudulently and without my knowledge or consent, altered the Company’s ASIC register, by way of an alleged shareholder resolution with Mr Raftopoulos and appointed [another person] as voluntary administrator to the Company”. He says that “Within weeks [the First Applicant] and Mr Raftopoulos effectively “phoenixed” the Company’s primary assets for approximately $7000 to LLL”. LLL Nominees Pty Ltd is the second [Applicant] in this case. He alleges that the first Respondent and Mr Raftopoulos jointly own the second [Applicant] in these proceedings.
On 27 November 2015, the company was placed into liquidation, with Mr Andrew Poulter appointed as the external administrator.
The Respondent commenced multiple proceedings in both the FCA and the SCQ against the First Applicant and other parties alleging breaches of common law, and statutory and fiduciary duties owed to the company. For instance, as set out in Judge Jarrett’s decision at [18] (where the Applicants were the Respondents and the Respondent was the Applicant):
18. […] The Applicant has also issued several proceedings against people including the Respondents. They are best summarised in the affidavit of Francesco Starvaggi filed on 19 February, 2020 as follows:
18. On 20 December 2018, at the Applicant’s request, on the basis of his unverified and unilateral allegations concerning the Respondents and other parties, the Australian Securities & Investments Commission (ASIC) conferred authorisation upon him as an ‘eligible applicant’ on behalf of La La Land Byron Bay Pty Ltd (ACN 092 061 688) (In Liquidation) (La La Land) for the purposes of Part 5.9 of the Corporations Act 2001. This authorisation allows the Applicant to bring certain legal proceedings, including applying for the issue of examination summonses, on behalf of the company in liquidation, La La Land.
19. In the time following, the Applicant caused a number of legal proceedings in the Federal Court of Australia to be issued by, or on behalf of La La Land, purportedly pursuant to the Corporations Act 2001 (the Act), including proceedings:
i. QUD 18/2019 (concerning the issue of public examination summonses pursuant to s.596A and s.596B of the Act),
ii. QUD 41/2019,
iii. QUD 407/2019 and
iv. QUD 438/2019.
20. These proceedings were issued against a number of parties respectively, including without limitation, the Respondents, Peter Raftopoulos and the liquidator of La La Land, Andrew Poulter (Liquidator). In the proceedings, the Applicant sought relief in the form of declarations, injunctive relief (freezing orders), damages, equitable damages, orders for the transfer of shares as well as “interests in equity” [sic].
21. On 23 December 2019, the Federal Court of Australia ordered that:
i. pursuant to Rule 30.11 of the Federal Court Rules 2011, proceedings QUD 407 of 2019 and QUD 438 of 2019 be consolidated under proceeding QUD 41 of 2019;and
ii. the consolidated proceeding QUD 41 of 2019 be transferred to the Supreme Court of Queensland.
22. On 10 February 2020, his Honour Justice Flanagan of the Supreme Court of Queensland ordered that proceedings BS 206/20 and BS 8834/20 be consolidated under proceeding BS 13700/17, which is an earlier proceeding the Applicant issued in that Court against the Liquidator.
Relevant to these proceedings, the Respondent filed an interlocutory application in one of the proceedings before the SCQ seeking an injunction against the Applicant and other parties. That application was first heard on 17 August 2018. The application was ultimately refused by his Honour Burns J on 21 August 2018, and the Respondent was ordered to pay costs. That order for costs, as well as other costs orders made against the Respondent throughout other proceedings in the SCQ, were assessed by a Deputy Registrar of the SCQ on 11 November 2019, and form the basis of the bankruptcy notice. On 25 March 2020, his Honour
Applegarth J in the SCQ dismissed the Respondent’s application to set aside, vary or stay the costs order made by the Deputy Registrar. His Honour dismissed that application and awarded costs to the Applicants. He also ordered that the Respondent must not bring any further applications in proceeding BS13700/17 or related proceeding BS8834/18 without the leave of the Court or the consent of all the parties.
The bankruptcy notice was served on the Respondent on 21 November 2019. On 5 March 2020, the Respondent’s application to set aside the bankruptcy notice was dismissed by Registrar Buckingham of this Court. On 22 December 2020, the Respondent’s review of Registrar Buckingham’s decision was dismissed by Judge Jarrett.
On 13 March 2020, the Applicants filed a creditor’s petition with this Court, seeking a sequestration order against the estate of the Respondent pursuant to s43 of the Bankruptcy Act. On 2 April 2020, the creditor’s petition was served on the Respondent. The first return of the creditor’s petition was on 16 April 2020, and the matter was adjourned on a number of occasions to enable the delivery of judgment by Judge Jarrett which occurred on 22 December 2020, as set out above.
On 22 April 2020, Mr Raftopoulos filed an appearance as a Supporting Creditor.
For completeness, on 2 July 2020, the Respondent applied to the FCA seeking an order that the Court conduct an inquiry into aspects of the administration of the company, now in liquidation. I note that, on 20 November 2020, his Honour Greenwood J transferred the proceeding to the SCQ with an order that the Respondent pay the liquidator’s costs of the transfer application.
On 24 July 2020, the Respondent again sought leave of the SCQ to apply for an order to stay the costs order. On 28 October 2020, his Honour Bradley J made orders in the SCQ proceeding BS13700/17 that:
(1)the Respondent provide security for the Applicants’ costs in respect of the proceedings, up to the first day of trial, in the amount of $35,000, on or before 21 days from the making of that order;
(2)failing provision of such acuity, that proceeding be stayed against the Applicants until security ordered above was provided; and
(3)the Respondent pay the Applicants’ cost of, and incidental to, their application (being the application for security for costs).
The Respondent has failed to provide security for costs as ordered and consequently proceeding BS13700/17 is stayed against the creditor Applicants. That stay affects the Respondent’s application for leave to apply for an order to stay the costs order which he filed on
24 July 2020.
The Respondent has filed 11 proceedings involving the Applicants or parties related to the dispute, which is briefly outlined above at [6] – [9]. Including the cost orders which form the basis of the claim made by the Applicants and Supporting Creditor, the Respondent has been the subject of approximately eight separate costs orders, none of which have been paid.
On 28 January 2021, the creditor’s petition seeking a sequestration order against the estate of the Respondent was heard by Registrar Ryan and the orders which are under review in these proceedings, as set out above, were made.
The matter came before me on 14 April 2021. The Applicants had Counsel jointly appear on their behalf, the Supporting Creditor was legally represented and the Respondent was self-represented. At the conclusion of that hearing, judgment was reserved.
GROUNDS OF OPPOSITION
In reviewing the Registrar’s decision in this matter, the Respondent relies on the following grounds of opposition (see Notice of Opposition filed on 10 April 2020):
1. The Respondent does not owe the money claimed by the creditor:
a. The Respondent is seeking a review of the determination of Registrar Buckingham made 5 March 2020 in the Federal Circuit Court of Australia File no BRG1061/2019 to dismiss an application to set aside the Bankruptcy Notice BN247424.
b. There are substantial grounds to go behind the judgment which include but may not be limited to that:
i. The judgement is tainted by illegality.
ii. The judgement was entered in a proceeding that should never have commenced.
2. The Respondent has a genuine and arguable claim against the Creditor for an amount well in excess of the debt.
3. The Respondent is able to pay the debt and is not insolvent.
On that basis, the Respondent seeks that the orders of the Registrar be set aside and that the creditor’s petition filed by the Applicants for a sequestration order be set aside or stayed for a period of time to be determined by the Court.
In submissions filed on 14 April 2021, the Applicants submit at [36] that the Court “should not be satisfied that a sequestration [order] should not be made under s.52(1) of the [Bankruptcy] Act.” On that basis, the Applicants seek orders that the Registrar’s order be upheld, and that a sequestration order be made against the estate of the Respondent. Further, the Applicants seek that their costs of these proceedings, and the costs of the Supporting Creditor, be paid from the sequestered estate in accordance with the Bankruptcy Act.
CONSIDERATION
Going Behind the Judgment
Subsection 52(1) and s52(2) of the Bankruptcy Act provide as follows:
(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;
and, if it is satisfied with the proof of those matters, may make a sequestration order against the estate of the debtor.
…
(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;
it may dismiss the petition.
In Stratton v Bowles (No.2) [2015] FCA 43 (“Stratton”), his Honour Beach J stated at
[27] – [30] that:
27. A petitioning creditor has a “prima facie right” to a sequestration order once proof of the matters required by s 52(1) has been satisfied (Deputy Commissioner of Taxation v Cumins (2008) 101 ALD 78 (Cumins) at [14] per Gilmour J; Cain v Whyte (1933) 48 CLR 639 (Cain v Whyte) at 646 and 648, the Court agreeing with Henchman J; Russell v Polites Investments Pty Ltd [2012] FCA 11 (Russell v Polites) at [23]-[24] per Flick J; Rozenbes v Kronhill (1956) 95 CLR 407 at 414 per Dixon CJ and Webb and Fullagar JJ). Nevertheless, there is a discretion to refuse such an order for inter alia “other sufficient cause” (s 52(2)(b)).
28. In relation to the concept of “other sufficient cause” a number of points should be made.
29. First, the circumstances which may constitute “other sufficient cause” are extremely variable, and it is inappropriate to catalogue or circumscribe them (Clyne v Deputy Commissioner of Taxation (1985) 5 FCR 1 at 5 per Fisher, Morling and Wilcox JJ; Cain v Whyte at 645).
30. Second, even if “other sufficient cause” has been shown, that merely enlivens the court’s discretion to refuse to make a sequestration order. The power in s 52(2) is permissive, not mandatory. Even if a debtor can bring himself or herself within s 52(2)(b), that does not entitle him or her to have a sequestration order refused (Russell v Polites at [24] per Flick J).
The Court has a discretion to go behind the judgment which forms the basis of the bankruptcy notice. In Stratton, Beach J stated at [32] that:
32. Generally, a court has a discretion to go behind a judgment. This may be exercised where:
(a) the judgment was obtained by default or compromise;
(b) the judgment was procured by or tainted with fraud or collusion; or
(c) the judgment was obtained following an adjudication on the merits where both parties appeared, but where there are substantial reasons for questioning whether there is in substance a debt.
The Respondent has not demonstrated, by way of his written material or his submissions at the hearing, that there is sufficient reason to question whether there is a debt owed by him to the Applicant, pursuant to the orders of the Deputy Registrar made on 11 November 2019 in the SCQ, which form the basis of the bankruptcy notice which is the subject of these proceedings. He has made multiple attempts to stay or set aside the costs order, and has been either unsuccessful or the proceedings have been stayed by reason of his failure to comply with the order for security for costs. There is no evidence that the judgement was procured by or tainted with fraud or collusion and the Respondent has not demonstrated substantial reasons to question whether, in fact, there is a debt arising from the costs order.
This ground of review must fail.
The Respondent’s Cross-Claim against the Applicants
It may be appropriate to adjourn a creditor’s petition in circumstances where a debtor has a bona fide and arguable cross-claim against the creditor which, if successful, will exceed the quantum of the judgment debt: see Stratton.
In Stratton, Beach J stated at [38] – [39] that:
38. The existence of a cross-claim…may be a “sufficient cause” if the claim, if successful, well exceeds the judgment debt.
39. An important distinction is to be made between a cross-claim which is likely to succeed and a cross-claim which is a bona fide and reasonably arguable claim, but where it is not established by the judgment debtor that it is likely to succeed. In the former case, where it is established that the claim is likely to succeed, such a claim may warrant the refusal of a sequestration order… [i]n the latter case, only a basis for adjourning the creditor’s petition may be established, but the refusal of a sequestration order may not be justified (Rigg v Baker at [66] per French J).
His Honour went on to state at [42]:
42. Finally, it should be said that a judgment debtor does not establish a bona fide and reasonably arguable claim by merely producing a statement of claim in a separate proceeding or by pointing to such litigation. There must be sufficient evidence or other material to show that it satisfies both criteria to justify an adjournment; to demonstrate that it is reasonably arguable or of substance may require prima facie verification of the key factual elements as well as demonstrating legal tenability.
The Applicants submit that the Respondent’s argument in respect of his cross-claim was considered by Judge Jarrett in his decision made on 22 December 2020 (Thomas v Taiaroa), and the argument was ultimately rejected, and therefore the Respondent should be estopped from raising the argument in these proceedings.
In his decision at [23] – [33], Judge Jarrett considered the Respondent’s argument in respect of his cross-claim and the principles which are to be applied. At [34] – [35] of his decision, Judge Jarrett, in rejecting the Respondent’s submissions and dismissing his application, summarised his position as follows:
34. The obligation on the applicant is to demonstrate that he has a genuine demand, set off or cross-claim. The Court must be satisfied that it has a reasonable probability of success and that it is just that that claim should be determined before any bankruptcy proceedings. On the evidence before me, I am not so satisfied. Despite the enormity of the material relied upon by the applicant, given the nature of the claim that he wishes to pursue and the material before me in support of it, I can only conclude that his proposed demand, set off or cross-claim is speculative at best.
35. Moreover, the demand or claim must be in the same right as the judgment against the applicant. It is not in this case.
I accept the Applicants’ submission that Judge Jarrett made a determination on the issue of the Respondent’s cross-claim and its probability of success against the Respondent. To raise the same argument again in these proceedings, may constitute an abuse of process and result in issue estoppel: see Tomlinson v Ramsey Food Processing Pty Ltd [2015] HCA 28 (per French CJ, Bell, Gageler and Keane JJ).
In his affidavit filed on 15 February 2021, the Respondent sets out that one aspect of his review of the Registrar’s decision is that he has “additional evidence of allegations of fraud made against the first applicant to be provided by separate affidavit”. The Respondent filed a subsequent affidavit on 9 April 2021, setting out various allegations about the First Applicant’s conduct, relevant third party conduct and the solvency of the company, which include that:
(1)the Respondent is of the view that he does not owe the Applicants “for the costs of the subject of this proceeding on grounds that [the First Applicant] did not have authority to appoint an external administrator and the Company was not insolvent”;
(2)as at 25 September 2015, the company was not insolvent and the First Applicant had no reason to hold the opinion that the company was insolvent;
(3)the external administrator, Mr Poulter, ignored correspondence and demands from the Respondent in respect of the company’s accounts, and accused the Respondent of fabricating a company balance sheet; and
(4)the landlord of the business premises, Mr Peter Roger, confirmed during examination in the SCQ that he was not a creditor of the company, but subsequently signed a “claim and proof of debt” which was submitted to a meeting if creditors for “voting purposes”.
To that affidavit, the Respondent attached some 2751 pages of annexures in support of his allegations.
The Respondent has a number of claims against the Applicants in the SCQ. The evidence indicates that the Respondent initially brought proceedings on behalf of the company only, and not himself. However, in respect of the Respondent’s consolidated claims, which are discussed above, some of those claims are brought by him directly (and not on behalf of the company) while others are brought on behalf of the company.
The Respondent, in essence, claims that he is a creditor of the company, and that the First Applicant and other parties engaged in conduct which breached a common law duty of care and fiduciary duty owed to him and that those parties also engaged in misleading and deceptive conduct in contravention of the Australian Consumer Law. It is said that this conduct led to the Respondent incurring significant financial losses, including loss of wages. The relief sought by the Respondent includes personal compensation and compensation for losses independent of the company. The Respondent quantifies his claim as approximately $6,000,000 which, if successful, would exceed the Respondent’s debt to the Applicants and Supporting Creditor.
In my view, the matters that the Respondent claims by way of cross-claim have, in large part, have been considered and dealt with by Judge Jarrett in his decision. Even if those claims were not considered and rejected by Judge Jarrett, I am of the view that, following the principles set out in Stratton, the Respondent does not have a reasonably arguable claim in the SCQ, as currently articulated in his pleadings, to justify an adjournment of the creditor’s petition so as to enable him to prosecute his matter in the SCQ.
I accept the submission that the majority of the claims raised by the Respondent are claims that ought properly be brought by the company and, in particular, the liquidator of the company. In that regard, I refer to and adopt the substance of Judge Jarret’s decision in Thomas v Taiaroa at [23] – [33]. To the extent that those claims are personal to the Applicant and not subject to Judge Jarret’s ruling, there is no evidence before the Court regarding the financial position of the company to make a determination that any money would flow to the Applicant were he successful in the proceedings. Further, given that the action is stayed by the orders of the SCQ, it is unlikely that the action will proceed in the near future.
It is noted that the Respondent filed a statement of claim in the SCQ on 27 January 2021 alleging a cause of action in defamation and conspiracy, with the intent to infringe upon and interfere with the Respondent’s rights and interests, against the Applicants and ten other defendants. The Respondent alleges that in 2015 the Applicants and various other named defendants defamed him through various defamatory publications. I accept the submission that those claims are likely to be statute barred under s10AA(1) of the Limitation of Actions Act1974 (Qld), which requires defamation proceedings to be brought within one year of the date of the publication of the matter complained of by the prospective plaintiff. Even if leave was obtained to bring that action out of time, it is unlikely that the proceeding or any of the other proceedings issued by the Respondent, are likely to be resolved so as to have an impact on his solvency within a reasonable time.
The Respondent’s Solvency
Section 5(2) of the Bankruptcy Act states that “a person is solvent if, and only if, the person is able to pay all the person’s debts, as and when they become due and payable”. Conversely, s5(3) states that a person who is not solvent is insolvent.
The onus of demonstrating solvency rests with the Respondent: see Australia and New Zealand Banking Group Ltd v Foyster [2000] FCA 400 (“Foyster”) at [17]. Further, the Respondent must demonstrate that he is able to pay his debts when they become due and payable, or in a relatively short period of time, and it is not enough to show that he has assets which exceed his liabilities: see Foyster at [17]. In Sandell v Porter [1966] HCA 28, Barwick J stated at [15] that the debtor is “…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…”.
Further, solvency in of itself is not a basis to set aside the bankruptcy notice: see Bryant v Commonwealth Bank of Australia (1994) 217 ALR 251, 254.
By way of the submissions filed on 14 April 2021, the Applicants submit that:
(1)there is no evidence that the Respondent has the means to pay the security for the costs order that has resulted in a stay of proceedings;
(2)there is no evidence as to the company’s financial position which the Court could take comfort from in respect of any monies which would flow to the Respondent as a shareholder, should his consolidated proceedings in the SCQ be successful;
(3)the Respondent’s personal claims, in respect of the alleged breaches of duty of care/fiduciary duties and the allegations of misleading and deceptive conduct, have not been sufficiently articulated so as to enable this Court to conclude that the Respondent has a sufficiently reasonable claim which justifies an adjournment of the creditor’s petition;
(4)regardless of the merits of the Respondent’s claims, they have now been stayed against the First Applicant by Bradley J in the SCQ and will be unlikely to proceed unless the Applicant is successful in his appeal against the orders of Bradley J. The Applicants submit that that the appeal is unlikely to be successful in circumstances where Bradley J found in the SCQ that the Respondent was impecunious and was bringing the proceeding primarily for the benefit of the company, although not solely for its benefit: see r671(b) of the Uniform Civil Procedure Rules 1999 (Qld).
There is limited evidence as to the Respondent’s current financial position, but there is some evidence in the Respondent’s written material which indicates that he has solvency issues. In his affidavit filed on 7 May 2020, the Respondent acknowledges that, in the context of a debt owed to the Applicants in excess of $1,000,000, he has been lent money by various people to help him bring proceedings in this matter.
I note that, whilst raised in this review, the Registrar noted in his decision of 28 January 2021 that the Respondent no longer pressed the ground of solvency during the course of the hearing before him.
Further, in his affidavit filed on 9 April 2021, in respect of his personal financial losses, the Respondent states that:
35. As at 25 September 2015 I owned a property at 15 Bryce St Suffolk Park NSW (the Property).
36. From September 2015 until May 2016, due to legal expenses and loss of income I was unable to maintain payments on my mortgage against the Property held with Suncorp. Copies of the Suncorp loan statements are attached Exhibit LT-22 pages 2725-2726.
37. I was forced to sell the Property and realised $990,000 or thereabouts. On 28 July 2016 my then solicitor Ian McKay sent me by email the sale contract. A copy is at Exhibit LT-22 pages 2727-2728.
38. According to information on the website of realestate.com on or around February 2021 the neighbouring house at 13 Bryce St Suffolk Park NSW sold for $2,800,000. A copy is at Exhibit LT-22 pages 2729-2733.
Additionally the Respondent made 4 applications in the SCQ or the Supreme Court of Queensland (Court of Appeal) for fee reduction in respect of four substantive applications filed in those Courts. In support of an application for leave to stay the cost orders in July 2020, the Respondent filed an affidavit in support affirmed on 24 July 2020 (see the affidavit of Mr James Marks filed on 27 January 2021, exhibit JAM-05) in which he deposed to being impecunious (as a result of the actions of the Applicants) and that his only asset of significance was his claim in proceeding BS17300/17.
The evidence in this proceeding supports a finding that the Respondent is insolvent, that he has no viable cross claim and/or has no capacity to prosecute that cross-claim because he is unable to satisfy the order security for costs made in the SCQ. In those circumstances, the Respondent fails to establish that there are sufficient grounds to adjourn the hearing to allow him to prosecute that claim.
CONCLUSION
The court is not satisfied that it is appropriate to further adjourn the petition and I do not consider that there is other sufficient cause under s52(2)(b) of the Bankruptcy Act to not make a sequestration order. There is no evidence filed by the Respondent to suggest that he is solvent. I am not satisfied that a sequestration order should not be made under s52(2)(a) of the Bankruptcy Act.
For these reasons, I will dismiss the Respondent’s application for review of the Registrar’s decision filed on 15 February 2021. An order will also be made for the Applicants’ and Supporting Creditor’s costs to be taxed and paid from the sequestered estate of the Respondent.
I certify that the preceding fifty-one (51) numbered paragraphs are a true copy of the Reasons for Judgment of Judge McNab. Associate:
Dated: 10 September 2021
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