The Owners - Strata Plan No 11478 v James (No.2)

[2017] FCCA 3012

FEDERAL CIRCUIT COURT OF AUSTRALIA

THE OWNERS - STRATA PLAN NO 11478 v JAMES (No.2) [2017] FCCA 3012

Catchwords:
BANKRUPTCY – Bankruptcy Act 1966 (Cth) – Creditor’s Petition seeks sequestration order against Debtor’s Estate – only ground of opposition to a sequestration order is assertion of solvency of Debtor – no admissible evidence of solvency – Creditor has established entitlement to sequestration order – sequestration order made.

Legislation:

Bankruptcy Act 1966 (Cth), ss.5, 52

Cases cited:

Soundwave Festival Pty Ltd v Altered State WA Pty Ltd (No.2) [2014] FCA 562

Applicant: THE OWNERS - STRATA PLAN NO 11478

Respondent: JENNIFER ELIZABETH JAMES

File Number: SYG 166 of 2017

Judgment of: Judge Dowdy

Hearing date: 29 November 2017

Delivered at: Sydney

Delivered on: 29 November 2017

REPRESENTATION

Counsel for the Applicant Creditor: Mr C. B. O'Neill of Counsel

Solicitors for the Applicant Creditor: Swaab Attorneys

The Respondent Debtor appeared in person.

THE ORDERS OF THE COURT ARE AS FOLLOWS:

1. Direct the Applicant Creditor to file and serve an affidavit of service deposing to the filing and service of the affidavits of Mr Terence Paul Sperber of 2 May 2017 and 7 August 2017 by noon on 30 November 2017.

2. A sequestration order be made against the estate of Jennifer Elizabeth James.

3. The Applicant Creditor’s costs, including any reserved costs and the costs of the hearings before the Court, be taxed and paid from the bankrupt Estate of Jennifer Elizabeth James according to the Bankruptcy Act 1966 (Cth).

4. A copy of this sequestration order be given to the Official Receiver in Sydney within two days.

5. The Court Notes that the date of the act of bankruptcy is 12 January 2017.

FEDERAL CIRCUIT COURT
OF AUSTRALIA
AT SYDNEY

SYG 166 of 2017

THE OWNERS - STRATA PLAN NO 11478

Applicant Creditor

And

JENNIFER ELIZABETH JAMES

Respondent Debtor

REASONS FOR JUDGMENT

EX TEMPORE

(Revised from Transcript)

1. In this matter the Applicant Creditor seeks by Amended Creditor’s Petition filed on 21 February 2017 a sequestration order against the Estate of the Debtor, Jennifer Elizabeth James.  The hearing of the matter has suffered from a degree of tension and difficulty, largely because, I have to say with regret, the Debtor has been seeking to raise and force upon the Court matters which, in my view,  were completely irrelevant to the basically fundamentally simple issues that were before the Court.

2. She has also engaged in making completely unnecessary and unsupported accusations against a number of lawyers involved in this case and other cases to which apparently she is a party.  That is all I want to say about that, but the fact of the matter is that Mr O’Neill of Counsel, who appeared for the Creditor, has read a body of formal affidavit evidence which has been marked for identification which establishes that the Petitioning Creditor has satisfied the statutory requirements to prima facie be entitled to a sequestration order against the Estate of the Debtor. 

3. That then leaves the Notice of Opposition relied on by the Debtor. Some time ago, that is on 23 March 2017, the Debtor filed a Notice of Opposition. There was only one ground. It was the reasonably well-known ground of solvency. That is a recognised ground of opposition to the making of a sequestration order under a Creditor’s Petition. Under s.52(2)(a) of the Bankruptcy Act 1966 (Cth) (the Act) she needs to satisfy the Court that she is able to pay her debts. By s.5(1) of the Act:-

   “debt” includes liability.

4. The test for solvency is set out in s.5 of the Act in the following terms:-

   (2)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.

   (3)    A person who is not solvent is insolvent.

5. It is clear from numerous authorities that the onus of proving that she is able to pay her debts is on the Debtor. Unfortunately, the affidavit of the Debtor affirmed on 23 March 2017, was not largely in admissible form.  It failed in any way to establish that the Debtor is solvent. I had noticed this in a preliminary sense on 4 August 2017, when the matter came before me for first directions after having been docketed to me.  On that occasion Mr Leong of Counsel appeared for the Debtor and Mr O’Neill of Counsel appeared for the Creditor.  It was then that I raised with Mr Leong that it was never sufficient for a Debtor to simply allege in general terms on their own behalf that they were solvent, but that solvency needed to be proved by admissible and usually financial, accounting, or valuation evidence.  Such evidence needs to be the “fullest and best” financial evidence and in this respect see the judgment of Wigney J in the Federal Court of Australia in  Soundwave Festival Pty Ltd v Altered State WA Pty Ltd (No.2) [2014] FCA 562 where the relevant authorities in this regard are considered.

6. At that point of time, there had already been made an order which required the filing and serving by the Debtor of affidavit evidence by 28 August 2017.  That order probably really only encompassed reply evidence but I said to Mr Leong on this occasion that if he wanted to put on further and better evidence as to solvency in chief, he had better do that and we would all see what Mr O’Neill and the Creditor would say about that subsequently.  The matter came back before me again for directions on 1 September 2017 when Mr Leong again appeared as Counsel for the Debtor. 

7. I should have said that on the first occasion, being 4 August 2017, it is likely that the Debtor herself was not in Court, but on the second occasion on 1 September 2017 the Debtor was in Court and I pointed out to Mr Leong that no evidence as to solvency had been put on, whether by 28 August 2017 or at all, and he accepted that such was the case.  He said that the debtor still intended to put on further affidavit evidence of solvency and these were the words he said:

   And on the second matter, your Honour, if I may, we do intend to put an affidavit of solvency on.  We will need to get valuations from real estate agents.

8. So in those circumstances, where there had been a failure to put on proper evidence of solvency but it was foreshadowed that there would be further evidence, because of my concern that this matter be heard at a reasonably early point of time, I made this order:   

   2.The respondent debtor is not at liberty to file any further affidavit from today forward in this proceeding unless leave to do so is granted by express order of Judge Dowdy.

   No leave under this order was sought by the Debtor.

9. In the result, the matter came before me today and, after the body of formal evidence in support of the Petition had been read, the affidavit of the Debtor of 23 March 2017 was sought to be read. 

10. Mr O’Neill for the Creditor took objections to virtually the whole of the affidavit. I regarded those objections as soundly based and the result was that I made a number of rulings which meant that virtually the whole of the affidavit was rejected.  This meant that there was no proper evidence of solvency notwithstanding that the Debtor has had every opportunity and more than ample time to put on such evidence of solvency and presumably been advised by Counsel in this regard. 

11. Some three weeks ago her former solicitors, Frank Legal, and in particular a Mr Robert Webb filed a Notice of Withdrawal as Solicitor, having first given to the Debtor a Notice of Intention to Withdraw as Lawyer dated 17 October 2017.  In the ensuing period the Debtor could have taken steps to retain another lawyer and to ready herself for hearing today so that she was prepared to properly propound her sole ground of opposition.  She said to me that she could not, it all costs money and she asserted all sorts of other difficulties that she had faced. That may be the case, although I note that there is no admissible evidence which would support any of the allegations that she has seen fit to make from the Bar Table as to these problems and difficulties. 

12. But whatever difficulty she may face or may have faced, I as a Judge have to look at it from both points of view; that is, I am not entitled as a Judge to look at the matter purely from the point of view of the Debtor, but I have to take into account also the legitimate interests of the Creditor and to do justice to both parties in the best way that I can. 

13. In these circumstances, I find that there is no admissible evidence before the Court that the Debtor is solvent. I find that she has failed to make good her Notice of Opposition that she is solvent and able to pay her debts and I see no other sufficient cause or reason under s.52(2)(b) of the Act for a sequestration order not to be made. I will therefore make a sequestration order against the Estate of the Debtor.

I certify that the preceding thirteen (13) paragraphs are a true copy of the reasons for judgment of Judge Dowdy

Associate: 

Date:  29 November 2017