Tasic v Barro Group Pty Ltd

[2003] FMCA 61

FEDERAL MAGISTRATES COURT OF AUSTRALIA

TASIC v BARRO GROUP PTY LTD [2003] FMCA 61

BANKRUPTCY – Annulment application – sequestration order – creditors petition – solvency – relevance of jointly held asset – inability to obtain share of asset to pay debts – applicant otherwise insolvent – application refused.

PRACTICE AND PROCEDURE – Refusal to permit applicant to adduce further evidence at final hearing – Applicant aware of evidence sought to be challenged one week prior to hearing.

Bankruptcy Act1966, s.5(2) and 153B

Stankiewicz v Plata [2000] FCA 1185 (22 August 2000).
Re Frank; Ex parte Pilisky (1987) 16 FCR 396
Worrell v Issitch (1999) FCA 1336

Applicant: SLOBODAN (aka STEVE) TASIC

Respondent: BARRO GROUP PTY LTD

File No: MZ 1 of 2003

Delivered on: 4 March 2003

Delivered at: Melbourne

Hearing Date: 17 February 2003

Judgment of: McInnis FM

REPRESENTATION

Counsel for the Applicant: Mr D Harrison

Solicitors for the Applicant: Findlay Arthur Phillips

Counsel for the Respondent: Mr M Sanger

Solicitors for the Respondent: Forbes Dowling

ORDERS

1. The application filed on 6 January 2003 be dismissed.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
MELBOURNE

MZ1 of 2003

SLOBODAN (aka STEVE) TASIC

Applicant

And

BARRO GROUP PTY LTD
(ACN 005 105 724)

Respondent

REASONS FOR JUDGMENT

Introduction

1. This is an application for annulment of a sequestration order made on

   
   

   3 October 2002 whereby the estate of SLOBODAN (aka Steve) TASIC ("the debtor") was sequestrated.  The sequestration order was made following the filing of a creditor's petition with the Court on 23 August 2002.  The petition relied upon a judgment entered in the Magistrates Court of Victoria on 1 March 2002 in the amount of $26,333.43 which had been obtained by Barro Group Pty Ltd ("the creditor").

2. A bankruptcy notice founded on that judgment had been served upon the debtor on 22 May 2002. 

3. In support of the creditor's petition the usual affidavits were filed verifying the debt, the fact that there is no security held by the creditor and that the debtor at the time when the act of bankruptcy was committed was ordinarily resident in Australia.  Other affidavit material relating to the usual searches and service were also relied upon and ultimately the sequestration order made on 3 October 2002 and the date of the act of bankruptcy noted on the order to be 12 June 2002. 

4. The application for annulment seeks the following orders: -

   “1.An order that the sequestration order made 3 October 2002 in proceeding number MZ849 of 2002 be annulled pursuant to section 153B of the Bankruptcy Act 1966.

   2.An order that the trustee of the bankrupt estate of the applicant transfer, deliver and/or convey to the Applicant any and all property, documents or other items that he might be holding in his capacity as trustee of the bankrupt estate of the applicant.

   3.Costs.

   4.Such further or other orders as the Court deems fit and proper.”

5. In support of the application the debtor has relied upon an affidavit sworn by him on 17 December 2002.  In that affidavit the debtor deposes to having migrated to Australia in 1975 from Serbia.  Whilst he has what he has described as a “working knowledge of English which is sufficient to allow me to operate as a concreter” he asserts that he is "not fluent in English".

6. The debtor further refers to his limited education and a lack of familiarity with legal or Court proceedings. 

7. It is useful to set out the following paragraphs from the debtor's affidavit which are relevant to the present application.  The debtor states in his affidavit: -

   “5.I have had the Creditor's Petition filed 23 August 2002 explained to me by my solicitor … and am informed by him and believe that on 1 March 2002 judgment was entered against me in the Magistrates Court of Victoria for the sum of $23,675.68 together with interest of $1,424.76 and costs of $784.00 by Barro Group Pty Ltd in proceeding number P01875038 (‘the Magistrates Court Proceedings’).

   6.To the best of my knowledge and belief I was never served with any Complaint or other originating process in the Magistrates Court Proceedings.  On one occasion, I recall that I was given papers by a person I did not know however they were never explained to me and I did not understand their effect.  I do not know whether these papers were Court documents or not.  At the time judgment was entered against me I had no knowledge of the proceeding and was not aware that I was required to file a defence to any Complaint.  Accordingly, I believe that the judgment was obtained against me by default and certainly without me being heard or filing any defence.

   7.With respect to the substance of the claim made against me by Barro Group Pty Ltd I say that whilst I did undertake some trade with them, I do not believe that I am indebted to them for the amount claimed or any amount approaching that.  I am informed by my daughter, Dijana, and believe that on a number of occasions she has telephoned Barro Group Pty Ltd on my behalf and requested copies of delivery dockets showing proof of delivery of concrete relevant to the amount claimed by them against me but that Barro Group has refused to provide such documents or any detail as to how the debt is calculated.  As a result, I am unable to be more precise as to what amount (if any) I may properly owe Barro Group Pty Ltd.”

8. In his affidavit the debtor then refers to another creditor, namely Campbellfield Mini-Mix Pty Ltd and ultimately concludes that he is not indebted to that company for any amount and the judgment claimed against the debtor by that company is a judgment which was for an amount of $23,217 which the debtor disputes.  The debtor claimed in his affidavit that he has instructed solicitors to apply for a rehearing of both Magistrates Court proceedings so that he may contest the judgments obtained against him in his absence.

9. It is noted in the affidavit of the debtor that he claims to be presently unemployed and has limited assets.  In fact it is common ground that the major asset of the applicant is a property held jointly and severally with his wife at 55 Woolnough Drive, Middle Park ("the property").  The applicant claims that the property is subject to a housing loan to the Commonwealth Bank in the sum of $45,000 and he believes his share in the property is worth approximately $140,000.

10. The respondent relied upon an affidavit of Bruce Graham Arthur sworn 7 February 2003.  In the affidavit Mr Arthur refers to the debtor's statement that he was never served with any complaint or any other originating process in the Magistrates Court proceedings.  He produces an affidavit and/or declaration of service sworn by Lieselotte Rosa Sieble on 29 December 2001.  That affidavit refers to service being effected on the debtor by “delivering it to his place of residence to Mrs Tasic a person apparently above the age of 16 years and residing there at 55 Woolnough Drive, Mill Park Vic 3082.”

11. In his affidavit Mr Arthur exhibits relevant tax invoices addressed to the applicant's business which he claims prove that the amount outstanding to the respondent is in the sum of $23,675.68.  He further exhibited copies of relevant delivery dockets.  He otherwise denies the telephone conversation with the debtor's daughter whereby requests for delivery dockets were made and asserts that the debtor does not have a known defence to the respondent's claim. 

12. An affidavit was sworn by the Trustee Stirling Lindley Horne on

    
    

    13 February 2003 pursuant to orders made requiring a report from the trustee.  Mr Horne attached a copy of a statement of affairs of the debtor and it is noted in that statement of affairs that the debtor lists as unsecured creditors the creditor in the present proceedings and Campbellfield Mini-Mix Pty Ltd.  In that statement of affairs the estimated value of the property is stated by the debtor as $350,000. 

13. Also annexed to Mr Horne's affidavit is a copy of the trustee's report to creditors dated 5 December 2002.  In regard to the result of the investigations relating to the debtor's assets and liabilities, the report to creditors concludes that the bankrupt's assets are "in excess of his liabilities".  He then suggests that "unsecured creditors should be paid in full".

14. In his affidavit Mr Horne states the following: -

    “9.Although the Bankrupt's assets are in excess of his liabilities, his only asset of substance (a property valued at $350,000.00) is owned jointly with his wife.  Therefore in order to realise this asset, the consent of the Bankrupt's wife would be required.  It is my understanding that the Bankrupt's wife would not provide her consent in this regard.  Accordingly the Bankrupt was not able to realise his share of the property and therefore was unable to pay his debts as and when they fell due. 

    10.The Bankrupt has been unemployed for approximately 12 months prior to the making of the Sequestration Order and remains unemployed.

    11.Prior to the application by the Bankrupt seeking the annulment of his Bankruptcy, having identified that the Bankrupt's assets were in excess of his liabilities, I contacted the Bankrupt and suggested that he put forward a proposal to pay his Creditors in full, hence annulling the Bankruptcy pursuant to section 153A of the Act.  I have not received a proposal in this regard. …”

15. The debtor at the time of the hearing of the application for annulment had not provided any further affidavit material in reply to the affidavit of Mr Arthur sworn 7 February 2003 or indeed the affidavit of Mr Horne which had been sworn on 13 February 2003. 

Relevant law

1. Section 153B of the Bankruptcy Act1966 (the Bankruptcy Act) provides:

   “153BIf the Court is satisfied that a sequestration order ought not to have been made or, in the case of the 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. The Full Court of the Federal Court of Australia considered the principles which apply in relation to annulment of a sequestration order under s.153B of the Bankruptcy Act in the matter of Stankiewicz v Plata [2000] FCA 1185 (22 August 2000). Under the heading "The Principles" the Court stated the following: -

   19.In Re Williams (1968) 13 FLR 10, Gibbs J explained the approach to be taken to the then equivalent of s 153B of the Bankruptcy Act (at 23);

   'In determining the question whether the sequestration order ought not to have been made, the court is entitled to consider not only the case as disclosed at the time the order was made, but as it would have been disclosed had all the true facts been before the Court on the making of the order.  If the Court is satisfied that the order ought not to have been made, it is not bound as a matter of course to annul the order, but must consider in the light of all the circumstances of the case whether the order ought to be annulled.’ (Citations omitted)

   20.In Re Ditford; Ex parte Deputy Commissioner of Taxation (1988) 19 FCR 347, Gummow J observed (at 350) that the 'true facts' which are to be considered include those known at the hearing of the annulment application to have existed at the time the sequestration order was made, but exclude those facts that have occurred since the order was made. See also Re Ginnane; ex parte Ginnane (1994) 60 FCR 429 at 445-446; Re Gollan; ex parte Gollan (1992) 40 FCR 38 at 40-41.”

3. It is also appropriate to set out the following passages from the Full Court decision in Stankiewicz to which reference has been made by Counsel in the present case:

   “29.There are authorities which suggest that a bankrupt whose assets exceed his or her debts at the date of the sequestration order ordinarily will be entitled to an annulment of the bankruptcy, at least if the bankrupt gives undertakings to pay the costs of the petitioning creditor and of the trustee's costs of administration: Re Gollan, at 41-42, per Spender J; Re McDonald; Ex parte Deputy Commissioner of Taxation (1996) 33 ATR 1 (Spender J). This principle is said to follow from s 52(2)(a) of the Bankruptcy Act, which provides that if the Court is satisfied that the debtor 'is able to pay his or her debts', it may dismiss the creditor's petition. In general, a debtor who so satisfies the Court will succeed in having the creditor's petition dismissed: Sarina v Wollondilly Shire Council (1980) 48 FLR 372 (FC), at 376; Re Stubberfield; ex parte Paradise Grove Pty Ltd (1995) 134 ALR 169; cf Trojan v Corporation of Hindmarsh (1987) 16 FCR 37 (FC), at 47. We are content to assume, without deciding, that the authorities to which we have referred correctly state the position.

   30.In order to satisfy the Court that he or she is 'able to pay his or her debts’, it is not necessary for the debtor to show that he or she has cash resources immediately available for this purpose. But the debtor must be able to realise assets, sufficient to pay the debt, within a relatively short time. As Barwick CJ said in Sandell v Porter (1966) 115 CLR 666 at 670 the resources to be considered: -

   'extend to moneys which [the debtor] can procure by realization by sale or by mortgage or pledge of his assets within a relatively short time - relative to the nature and amount of the debts and to the circumstances, including the nature of the business, of the debtor.  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 has or can command through the use of his assets, to meet his debts as they fall due which indicates insolvency.'

Applicant's submissions

1. The applicant submitted that the sequestration order ought not to have been made.  It was submitted that the order ought not to have been made because subsequent evidence disclosed that all the facts were not before the Court when the sequestration order was made.  The fact that proceedings to set aside default judgments have not been commenced does not mean that the Court ought not to exercise its discretion to grant the annulment application.

2. The factors submitted to be relevant to the Court's discretion advanced by Counsel for the applicant include the following: -

   “(a)The applicant neither appeared nor was represented at the return of the creditor's petition.

   (b)The commercial morality of the applicant prior to the making of the sequestration order.

   (c)The applicant's conduct during the course of the bankruptcy. (MacDonald v Official Trustee [1999] FCA 1303 at [21]).

   (d)Whether the applicant was insolvent at the relevant time. Moreover whether they were hopelessly insolvent (Popic v DCT (1994) 94 ATC 4148 Carr J).

   (e)Whether the applicant had committed any other act of bankruptcy.

   (f)Whether the applicant's business affairs require further investigation.

   (g)The time between the making of the sequestration order and this application – Delph Sing v Wood (1918 25 CLR 497, 499.

   Here, the sequestration order was made on 3 October 2002 and this application was filed 24 December 2002.  This period is not excessive and is explained by the applicant's overall lack of knowledge and understanding of:

   (i) the nature of the proceedings;

   (ii)  his legal right;

   (iii) how to enforce those rights;

   (iv)  his lack of English.

   (h)Whether the applicant has given any proposal to pay the trustee's fees, or an undertaking to the court to pay the trustee's  and creditor’s costs.

   (i)The effect of an annulment on the applicant's creditors, on the interests of the public and on 'commercial morality'.

   (j)The applicant's ultimate ability to pay his debts.

   (k)The applicant's purposes in seeking an annulment. 

   If the application is granted the applicant, the applicant will apply to the Magistrates’ Court of Victoria to set aside both judgments against him.  There are grounds to set aside those judgments both on the basis that:

   (i)the applicant has a meritorious defence to both claims; and

   (ii)the judgments on both claims may be irregular.”

3. In the circumstances it had been submitted in writing for and on behalf of the applicant that the applicant was solvent and his assets were more than double his liability. During the course of the hearing, however, it was conceded that pursuant to s.5(2) of the Bankruptcy Act that the applicant was insolvent though not ‘hopelessly’ insolvent and reliance was placed upon the excess of assets over liability. Reference was made to the applicant's lack of legal representation and to what might be described as irregularity in relation to service of the State Magistrates Court proceeding. Those irregularities essentially related to the affidavit of service. It was submitted that handwriting appears on the document which as I understood it had not been initialled and that there was some doubt about the method of service.

4. Further submissions were made that although invoices and delivery documents are now before this Court and whilst the applicant denied being indebted ‘to some extent’ to the creditor, it was suggested that an analysis of that material would reveal the true extent of indebtedness.  Application was made after the submissions for and on behalf of the creditor that the debtor should be given an opportunity to adduce further affidavit evidence.

Respondent's submissions

1. The respondent submitted that there are no grounds upon which the Court should exercise its discretion to allow the annulment of the sequestration order made by the Registrar on 3 October 2002.

2. In relation to the issue of service the creditor relied upon the affidavit evidence of the debtor where he states that, “On one occasion I recall that I was given papers by a person I did not know.”  Criticism was made then of the debtor for failure to annex to the affidavit copies of the document that was served and otherwise reliance was placed upon the affidavit of service to which I have referred.

3. Further criticism was made of the debtor and his failure to take any action to set aside the judgment at a date closer to the date when the judgment was entered, namely 1 March 2002.  It was noted that the debtor did not deny being indebted to the creditor and had simply stated in his affidavit, “I do not believe that I am indebted to them for the amount claimed or any amount approaching it.”

4. During the course of submissions it was submitted on behalf of the creditor that in the circumstances, at the very least, the debtor on receipt of the creditor's affidavit which attached all the delivery dockets and invoices should have attempted to analyse those documents and provide details regarding the extent of indebtedness.  Beyond the mere denial or query concerning the amount of indebtedness, it was submitted that the debtor failed to say what, if any, defence he has to the judgment obtained against him by the creditor.

5. It was further noted that there does not appear to be any dispute that the bankruptcy notice was served upon the debtor on 22 March 2002.  Nor does there appear to be any dispute that the debtor was served with the creditor's petition and associated documents on 15 September 2002. 

6. It was submitted for the creditor that there are insufficient grounds upon which the annulment is sought.  The process for the Court in considering annulment is not a review of the Registrar's discretion but rather a requirement that the Court determine whether it is satisfied a sequestration order ought to have been made (see Re Frank; Ex parte Pilisky (1987) 16 FCR 396).

7. It was submitted that on the authorities a sequestration order should not be annulled unless the Judge in the circumstances has found it ought not to have been made.  In the present case there is no suggestion of a denial of natural justice through non-service or tender of a debt prior to hearing or abuse of process.  Counsel otherwise relied upon the principles set out by the Full Court in Stankiewicz to which I have already referred.

1. It was further submitted that even if the Court was prepared to go behind the judgment which founded the creditor's petition then in the circumstances the debtor had not established that there is no debt upon which the bankruptcy proceedings were founded.  It is not for the Court to consider the judgment to see whether it should be reduced (see Worrell v Issitch (1999) FCA 1336).

2. On the issue of solvency it was noted that the affidavit of Mr Horne reveals that the debtor was not able to pay his debts as they became due and there no evidence of any effort by the debtor to pay his creditors.  It is not enough, it was submitted, to merely show that the debtor's assets exceed liabilities.  In the present case it was submitted that the ability of the debtor to realise the asset is significant and the Court should rely upon evidence in the affidavit of Mr Horne that the applicant's wife was not prepared to provide her consent to realise the only assets which provides the basis for the claim that the debtor's assets exceed his liabilities.  In those circumstances, the inability to realise the debtor's share of the property would lead the Court to conclude that the debtor was unable to pay his debts as and when they fell due and accordingly he is insolvent.

Reasoning and findings

1. In this application I have regard to the principles set out in the Stankiewicz decision.

2. In my view, the mere challenge to the accuracy of a debt in a matter of this kind is not sufficient reason to justify a Court going behind a judgment which has been the foundation for a bankruptcy notice and in turn a creditor's petition.  I am not satisfied on the material before me that there is any or any proper defence to the State Magistrates Court proceedings taken by the creditor against the debtor.  In fact, the affidavit evidence of the debtor himself is vague and uncertain in relation to the indebtedness and appears to be more concerned about the precise amount owing rather than whether there was any complete defence to the judgment.  In considering the technical claim that service may not have been effected properly, I am satisfied that personal service can be effected upon a person apparently above the age of 16 years and at the usual place of residence of the debtor.  The affidavit of service does not provide any basis for suggesting that the judgment entered in the State Magistrates Court could be said to be irregular or based upon inadequate evidence of service.

3. I further take into account the lack of challenge to the service of any other documents in the bankruptcy proceedings, including the bankruptcy notice and creditor's petition and associated documents.  If the judgment which founded those documents had been the subject of any serious challenge, then prior to the date of the sequestration order steps could have been taken to set aside the judgment.  In my view, it is relevant to take that matter into account in making an assessment of the kind required in an application of this type.   Any claimed lack of knowledge of English or Court procedure would not have prevented the Applicant from seeking legal advice at an earlier stage in order to challenge the judgments.

4. As this is a final hearing it seemed to me that where a creditor has provided detailed attachments by way of delivery documents and invoices then a debtor who seriously seeks to challenge the accuracy of those documents should provide affidavit evidence to the Court.  In this case the debtor had almost a week in which to seek to file further material and failed to do so.  It would be unfair and prejudicial in the circumstances to allow the argument to be advanced for and on behalf of a debtor and at the conclusion of that argument at the final hearing to then permit the debtor to adduce further evidence on a topic about which he had notice at least a week before the hearing and which according to his own affidavit material he was at one stage eager to challenge.  It is not appropriate to then give to a debtor a further opportunity to then perpetuate the dispute and seek to analyse material which had been in his possession for at least a week prior to the hearing.  Had issues been raised which required considerable research and investigation and/or which raised a new issue and upon short notice then consideration may be given to permitting a party in those circumstances to file and serve further affidavit material.  That is not the case in the present application and therefore for the reasons stated I decline to grant leave to the debtor to adduce further evidence. 

5. Relying therefore upon the evidence before me I am satisfied that no serious challenge could be made to the judgment debt in this matter and that the debtor has at all material times been duly indebted to the creditor for the sum of the judgment which was then relied upon in the bankruptcy proceedings. 

6. In relation to the issue of solvency I accept that the authorities provide that in certain circumstances a party may be entitled on an annulment application to claim solvency where assets exceed debts at the date the sequestration order was made.  It is noted in the present case that the debtor has provided an undertaking to the Court to pay the costs of the petitioning creditor and the trustee's costs of the administration.  However, even taking that into account as a factor which a Court may consider relevant on the issue of annulment, there is clear evidence in this case to suggest that whilst the major asset of the property and its value would have exceeded the debts of the debtor at the time the sequestration was ordinarily made, the debtor would not have been able to realise his share of the property.  This means that at all relevant times the debtor was insolvent as he was unable to pay his debts as and when they fell due.  The debtor remains unemployed and indeed was unemployed for a period of approximately 12 months prior to the making of the sequestration order.  I accept that the debtor had advised the creditor that he had experienced financial difficulties as early as November 1999 and the primary cause of his insolvency was due to unemployment and ill health. 

7. In the present case I am not satisfied that there is any basis upon which the Court can find that the sequestration order ought not to have been made. Applying the authorities to which I have referred and in particular the Full Court decision of Stankiewicz, it is my view that in any event, even if there had been some basis upon which it could be found that the sequestration order ought not to have been made, I do not consider that there is sufficient material before me to conclude that I ought to make an annulment order. Even if the matter were before me to consider upon hearing a creditor's petition I would not be satisfied that it would be appropriate to go behind the judgment and I am otherwise satisfied as to the requirements of the Bankruptcy Act including that at all material times the debtor was insolvent. There has not been any irregularity in relation to the entering of the sequestration order nor has there been a denial of natural justice which could be said to arise from improper or irregular service of the appropriate documents. Hence in all the circumstances for the reasons I have given, the appropriate order is that the application filed on 6 January 2003 should be dismissed.

I certify that the preceding thirty-eight (38) paragraphs are a true copy of the reasons for judgment of McInnis FM

Associate: 

Date:  4 March 2003