The Owners Strata Plan NO.55932 v Deary
[2011] FMCA 584
•21 July 2011
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| THE OWNERS STRATA PLAN NO.55932 v DEARY | [2011] FMCA 584 |
| BANKRUPTCY – Creditor’s petition – review of sequestration order made by Registrar – insufficient evidence of ability to pay debts – insufficient evidence of other cause for refusing a sequestration order – review application refused. |
| Bankruptcy Act 1966 (Cth), ss.52(1), 52(2)(a), 52(2)(b), 52(3) Federal Magistrates Act 1999 (Cth), s.104 Federal Magistrates Court (Bankruptcy) Rules 2006 (Cth), rr.4.06, 7.06(2), 7.06(3) |
| Cain v Whyte (1933) 48 CLR 639 Ebert v The Union Trustee Company of Australia Ltd (1960) 104 CLR 346 Eykamp v Deputy Commissioner of Taxation [2010] FCA 797 Glew v Harrowell of Hunt & Hunt Lawyers(2003) 198 ALR 331, [2003] FCA 373 Ling v Commonwealth of Australia (1996) 68 FCR 180 Ling v Enrobook Pty Ltd (1997) 74 FCR 19 Re Brink; Ex parte The Commercial Banking Company of Sydney Ltd (1980) 44 FLR 135 Re James & Anor; Ex parte Carter Holt Harvey Roofing (Australia) Pty Ltd (No.2) (1994) 51 FCR 14 Re Schmidt; Ex parte Anglewood Pty Ltd (1968) 13 FLR 111 Rozenbes v Kronhill (1956) 95 CLR 407 St George Bank Ltd v Helfenbaum [1999] FCA 1337 Totev v Sfar [2006] FCA 470 Vogwell v Vogwell (1939) 11 ABC 83 |
| Applicant Creditor: | THE OWNERS – STRATA PLAN NO.55932 |
| Respondent Debtor: | MARGARET ANNE DEARY |
| File Number: | SYG 385 of 2011 |
| Judgment of: | Smith FM |
| Hearing date: | 21 July 2011 |
| Delivered at: | Sydney |
| Delivered on: | 21 July 2011 |
REPRESENTATION
| Counsel for the Applicant Creditor (Respondent to the review application): | Mr M Sneddon |
| Solicitors for the Applicant Creditor (Respondent to the review application): | David Le Page Solicitor |
| Counsel for the Respondent Debtor (Applicant for review): | Respondent in person |
ORDERS
The application for review filed on 3 June 2011 is refused.
The sequestration order made on 23 May 2011 is affirmed.
The respondent creditor’s costs, including all reserved costs, be taxed and paid from the estate of the applicant debtor in accordance with the Bankruptcy Act 1966 (Cth).
The respondent creditor must give a copy of these orders to the trustee and the Official Receiver within 2 working days.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SYG 385 of 2011
| THE OWNERS STRATA PLAN NO.55932 |
Applicant Creditor
And
| MARGARET ANNE DEARY |
Respondent Debtor
REASONS FOR JUDGMENT
(revised from transcript)
The owners of Strata Plan No 55932, whom I shall refer to as “the Owners”, obtained a judgment against Ms Deary for accrued unpaid strata levies in relation to business premises in O’Connell Street, Sydney on 2 July 2010 in the amount of $73,703.98. Ms Deary has not disputed that liability, but has been unable to pay the full amount of the judgment, nor has she been able to pay subsequently accruing strata levies on the property. She now seeks review of a sequestration order which was based on her outstanding liability to the Owners.
A bankruptcy notice relying on the full amount of the judgment debt plus interest was served on her on 20 September 2010. She failed to comply with the notice before 11 October 2010, thereby committing an act of bankruptcy. She subsequently raised $55,000 towards her past and accruing liabilities to the Owners, and this was paid in November 2010. However, her remaining indebtedness continued, and further liability to pay strata levies continued to accrue. The creditor’s petition was filed by the Owners on 7 March 2011, asserting an indebtedness of $43,651.44. A series of affidavits of debt, which have been filed since the filing of the creditor’s petition up until yesterday, show that this amount remains outstanding.
The creditor’s petition was served personally on Ms Deary on 24 March 2011, and she was represented by a solicitor before the Registrar on the return of the petition on three occasions between 11 April 2011 and 23 May 2011.
On the first two occasions, the Registrar granted adjournments in the face of opposition from the Owners, after accepting assertions, including in an affidavit filed by Ms Deary’s solicitor, that processes were on foot to raise money to pay the debt to the Owners. Those expectations came to nothing, and on 23 May 2011 Registrar Kavallaris refused a further adjournment application, made a sequestration order, and ordered a 14 day stay on the operation of the order under s.52(3) of the Bankruptcy Act 1966 (Cth).
The evidence which was before the Registrar on that occasion, and is now before me, shows in my opinion that the sequestration order was properly made on that day. No issue was raised before the Registrar by or on behalf of Ms Deary disputing the matters upon which the Court is required to be satisfied under s.52(1) of the Bankruptcy Act before making a sequestration order. No such issue is raised before me today.
The proceedings before me today are on an application for review of the Registrar’s sequestration order under s.104 of the Federal Magistrates Act 1999 (Cth). Under that section, I conduct a full de novo review of the Owners’ entitlement to a sequestration order both before the Registrar and on the evidence before me today.
The review application was filed on 3 June 2011, and no issue is taken as to the time within which it was brought. There is no clear evidence that Federal Magistrates Court (Bankruptcy) Rules 2006 (Cth) r.7.06(2) and (3) have been complied with, but I am prepared to proceed on the assumption that no other unsecured creditor has emerged other than the Owners, and that the trustee has been given notice of the present proceedings. That latter fact emerges from an inappropriate letter addressed to myself by an employee of the Insolvency and Trustee Service Australia acting on behalf of the Official Trustee in Bankruptcy, who is the trustee appointed to administer the bankruptcy arising from the Registrar’s order. That letter is dated 22 June 2011 and it has become Exhibit 3 before me.
Ms Deary’s application for review was listed before a Registrar and myself on 7 June 2011, when I gave orders directing a timetable leading to the hearing today. This required Ms Deary to file and serve a notice listing the grounds of her opposition, to comply with r.7.06(2) and (3), and to file any further affidavits in support no later than 21 June 2011. The directions made it clear that evidence in support of the application should be presented by way of affidavit. The timetable then provided opportunity for the Owners to file affidavits in response. Provision was also made for the parties to foreshadow their arguments to each other and to the Court by way of submissions lodged in advance of today’s hearing which was appointed.
However, no party has filed anything prior to today’s listing, except two updating affidavits under Bankruptcy Rule 4.06, deposing to the continued existence of the indebtedness relied upon in the petition and searches of the insolvency register.
Ms Deary today sought to tender some additional documents, and I admitted some of them. Otherwise, her case in support of setting aside the sequestration order and opposing the petition is found in an affidavit which was affirmed on 3 June 2011 by Ms Deary. It said only:
1.My financial situation is solvent.
2.That as a result of unlawful behaviour by the building manager John Preston I have been severely hindered in earning my income.
The behaviour (unlawful) of John Preston resulting in me suffering panic attacks and debilitating mental and emotional stress.
There is then attached, but not verified, statements or submissions by Ms Deary. These assert that she is solvent by reason of her ownership of real estate, being the strata property which has incurred unpaid levies in O’Connell Street, Sydney, and also a property at Linley Point which is Ms Deary’s residence. She asserts the values of both of these properties, but her opinions in this respect are not shown to be based on her own expertise nor upon any other admissible evidence. She asserts an equity in relation to her ownership of those two properties over secured borrowings from the St George Bank, but the nature of that indebtedness is not established on evidence which satisfies me as to her possession of an equity in the asserted amount.
In short, I am not satisfied that she owns real estate valued at $3,450,000 and that her liabilities are only $1,610,000. I am not satisfied that, as a result only of such a surplus of assets over liabilities, she has established the ground for opposition of the petition under s.52(2)(a), being that “she is able to pay his or her debts”.
Ms Deary does not assert, and certainly presents no evidence, that she has cash available to pay the Owners the amount which she admits, and which is relied on in the petition. Manifestly, she has been unable to raise this amount, notwithstanding the hopes which have been conveyed to the Court throughout the life of this petition and were again repeated today.
In Eykamp v Deputy Commissioner of Taxation [2010] FCA 797, Buchanan J recently explained the Bankruptcy Act’s concept of ‘able to pay her debts’. He said:
7Under an earlier definition in the Act considered in Sandell v Porter (1966) 115 CLR 666 it was necessary for a debtor to be able to pay debts as they fell due out of the debtor’s own money. Such monies extended to those capable of being procured by sale, by mortgage or pledge of assets of the debtor’s within a relatively short time. A more flexible position now obtains. I note that in International Alpaca Management Pty Ltd v Ensor [1999] FCA 72 Katz J favoured the view that the necessity to pay a debt from a person’s own money continued to be an important element in the scheme established under the Act (see e.g. s 124(3)(a) of the Act). However, with respect, so far as it concerns consideration of whether a person is, or is not, solvent, I prefer the view taken by Palmer J in Lewis v Doran (2004) 184 FLR 454 at [116] (see on appeal Lewis v Doran (2005) 219 ALR 555 at [109]–[112]) to which I subscribed, with the agreement of Marshall and Tracey JJ, in Whitton at [34]‑[38]. Accordingly it would not be impermissible to pay regard to the fact that Mrs Eykamp could raise sufficient money to pay the debt, whether or not that was the direct result of sale, mortgage or pledge of her assets. However, whatever mechanism is employed to secure the necessary funds, and satisfy the Court that it provides adequate evidence of solvency, it remains necessary that it produce results within a realistic time frame (Sandell v Porter at 670, Hall v Poolman [2007] NSWSC 1330; 65 ACSR 123 at [187]).
Taking into account all the documents submitted by Ms Deary, and all that she has said to me today including from the witness box, she has failed to persuade me that she possesses assets from which she would be able to “produce results within a realistic time frame” so as to discharge the indebtedness upon which this petition is based. When assessing this, it is significant that a large part of this liability has been outstanding since the judgment entered against her in July 2010.
There was completely lacking from her evidence a precise accounting for her financial affairs, including her business affairs, and verification of the indebtedness to the bank and the valuation of her assets which would allow me any satisfaction in that respect. Nor in my opinion does her evidence elicit any prospect that her situation would be better clarified if I adjourned the present matter for a short period or suspended the operation of a sequestration order in the hope that the debt would be promptly discharged. I note that the Registrar gave her that opportunity when making the sequestration order, and there is no sign in the evidence before me that Ms Deary was able to avail herself of that stay.
I am therefore not satisfied that Ms Deary has made out this ground for the dismissal of the petition, nor for the further adjournment of the proceedings or for some other species of stay.
Ms Deary’s written and oral statements appear to assert other grounds for opposing the petition. In effect, she appears to assert that she has causes of action against the Owners in relation to business losses. The nature and quantum of her losses are left obscure, and they appear to have arisen during the pendency of the bankruptcy proceedings and not earlier. Ms Deary, in effect, alleges that the existence of the bankruptcy proceedings, and other measures taken by agents of the Owners, have compounded business difficulties she faced, and that these have impacted on her mental health.
Giving Ms Deary’s assertions all the credibility that I am able to give them, they do not in my opinion point to the existence of evidence of a counter‑claim against the Owners which could provide an “other sufficient cause” within authorities concerning s.52(2)(b) of the Bankruptcy Act for which “a sequestration order ought not to be made”, which could either justify the dismissal of the petition or its adjournment.
The relevant authorities are very usefully set out by Allsop J in Totev v Sfar [2006] FCA 470. He cited the statement of Gibbs J in Re Schmidt; Ex parte Anglewood Pty Ltd (1968) 13 FLR 111 that:
40… As a general rule this Court is not an appropriate forum to decide such a claim and is limited to forming a view as to whether it appears that there is sufficient validity in the debtor’s claim to justify a dismissal or adjournment of the petition ...
Allsop J then described the task of a bankruptcy court:
44It may be that the fourth sentence of the above passage in St George Bank Ltd v Helfenbaum is open to debate as to whether it states the matter slightly too unequivocally in the light of what was said in Ling v Enrobook. Nevertheless, what is clear is that the fact that there has been an act of bankruptcy does not make the claim by the debtor against the petitioning creditor irrelevant. It should be examined to assess whether it can be said that there is sufficient evidence to show that it is a real claim which is likely to succeed. Also relevant is the stage of the litigation, the length of time for its vindication and any other relevant matters. It goes without saying that solvency is a relevant consideration. In some circumstances, it may be difficult to assess the likelihood of success of the debtor’s claim. All the authorities show that central to the showing of “other sufficient cause” for the purposes of s 52(2)(b) is the question of the prospects of success. The case is not tried in the bankruptcy court, but the material is examined for the purpose alluded to by Gibbs J in Re Schmidt. As Olney J identified in Re James, if a likelihood of success can be demonstrated, that may justify a refusal of a sequestration order. Alternatively, the circumstances may reveal a claim of a character and nature in which likelihood of success cannot be predicted with accuracy but in the circumstances the petition should be dismissed or an adjournment of the petition should be granted: see the approach of Sundberg J in Ling v Commonwealth (1996) 68 FCR 180 at 195‑196, with which Wilcox J and Whitlam J agreed. If the claim is one in which credit of witnesses will be involved, and a debtor sets out the nature and detail of the case and all his or her evidence the debtor may only be able to persuade the bankruptcy court that, if relevant criteria are believed, he or she has good prospects of success. What should be proved, or what is sufficient to be proved, in any given case will depend upon the circumstances. The context in which the issue arises is also important. The discretion involved in s 52(2)(b) is a broad one, and, importantly, it is informed by public interest considerations concerned with the dealing with insolvents. It is to be distinguished from the task involved in deciding whether a claim exists that satisfied s 40(1)(g) of the Act. There, the task, prior to the commission of an act of bankruptcy, is the identification of a bona fide or genuine claim: Ebert v Union Trustee Co of Australia Ltd (1960) 104 CLR 346; Re Brink; Ex parte Commercial Banking Co of Sydney Ltd (1980) 44 FLR 135; Vogwell v Vogwell (1939) 11 ABC 83. Lindgren J summarised the position in relation to s 40(1)(g) in Glew v Harrowell (2003) 198 ALR 331 at [9]‑[12] as follows: (quotation omitted).
In my opinion, Ms Deary’s evidence to the Court does not achieve either of the thresholds referred to in the authorities, by pointing to particular circumstances which would appropriately cause me to exercise discretions to dismiss the petition or adjourn it while she could give better shape to her complaints. There has been no effort on her part to present a proper formulation of a cause of action, nor to identify its requisite particulars. Her assertions of fault in her statement are lacking in substance, and necessarily the respondent has not been in a position to lead evidence in rebutter. I can find no substance for any claim by Ms Deary against the Owners with any “likelihood of success”, and certainly not in relation to an amount of damages exceeding Ms Deary’s liabilities to the Owners in relation to unpaid strata levies and expenses. Nor in my opinion does her evidence meet the lower threshold in relation to adjournment of a bankruptcy petition, being the existence of a “real claim”. Ms Deary has had ample opportunity in the course of the present proceedings to present a better formulation for her complaints, together with evidence which points to the merits of her assertions, and has failed to make out a ground of opposition under s.52(2)(b).
Ms Deary’s other submissions to me today pointed to hardship which she will encounter if her bankruptcy continues, including to her efforts to resolve her insolvency as quickly as possible with the assistance of her bank and other people. They also pointed to the difficulties she will face in continuing her business and gaining employment to otherwise earn income, and to the emotional and psychological pressures on her arising from the present proceedings and her insolvency and the sequestration order.
All these matters gain my sympathy, but unfortunately they do not provide grounds which I can properly treat as overwhelming the creditor’s prima facie right to a sequestration order upon proof of the indebtedness and the other matters required to be proved under the Bankruptcy Act (see Cain v Whyte (1933) 48 CLR 639 at 646 and Rozenbes v Kronhill (1956) 95 CLR 407 at 414).
For all the above reasons, I am not persuaded that Ms Deary has made out a case for my reviewing the sequestration order made by the Registrar and setting aside that order.
On my full and de novo examination of the material which was before the Registrar, and the evidence which is now before me, in my opinion this was the correct order to be made at that time, and the correct order on the review now is to affirm that sequestration order.
I certify that the preceding twenty-five (25) paragraphs are a true copy of the reasons for judgment of Smith FM
Date: 1 August 2011
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