Vieusseux v Ives

[2006] FMCA 1176

FEDERAL MAGISTRATES COURT OF AUSTRALIA

VIEUSSEUX  v IVES [2006] FMCA 1176

BANKRUPTCY – Creditor’s petition – whether debt of more than $2,000 still owing – whether debtor able to pay his debts – whether other sufficient cause.

Bankruptcy Act 1966, ss.41, 44, 52
Bankruptcy Legislation Amendment Act 2002
Fines Act 1996 (NSW)

Australia & New Zealand Banking Group v Coutts [2003] FCA 968
Australia & New Zealand Banking Group Pty Ltd v Foyster [2000] FCA 400
Cain v Whyte (1939) 48 CLR 639
Dunn, in the matter of Dunn v Vangsnes [2000] FCA 1051
Klewer v Walton [2004] FCAFC 284
McIntosh v Shashoua (1931) 46 CLR 494
Re Buckley; Ex parte James Hardie & Co. Pty Ltd [1978] 27 FLR 496
Re Conomo (1959) 18 ABC 174
Re A Debtor; Ex parte The Petitioning Creditor [1917] 2 KB 60
Re Debtor; Ex parte Lawrence [1928] Ch 665
Re Gentry [1910] 1 KB 825
Re Jones (1975) 7 ALR 403
Re Lowe; Ex parte Lowe (1890) 7 Mor 25
Re Sarina; Ex parte Wollondilly Shire Council (1980) 43 FLR 163
Rigby v Beames [2002] FMCA 101
Sandell v Porter (1966) 115 CLR 666
Sarina v Council of the Shire of Wollondilly (1980) 48 FLR 372
Stankiewicz v Plata [2000] FCA 1185

Applicant: ANNETTE ELIZABETH VIEUSSEUX

Respondent: KEITH JOHN IVES

File Number: SYG597 of 2006

Judgment of: Barnes FM

Hearing date: 18 July 2006

Delivered at: Sydney

Delivered on: 24 August 2006

REPRESENTATION

Counsel for the Applicant: Mr J. Raine

Solicitors for the Applicant: De Mestre & Company

Solicitors for the Respondent: Teitzel & Partners

ORDERS

1. That the creditor’s petition is dismissed.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
SYDNEY

SYG597 of 2006

ANNETTE ELIZABETH VIEUSSEUX

Applicant

And

KEITH JOHN IVES

Respondent

REASONS FOR JUDGMENT

1. On 24 February 2006 the applicant creditor presented and filed a creditor’s petition seeking that a sequestration order be made against the estate of the respondent, Keith John Ives.  The petition is founded on the failure of the respondent (the debtor) to comply with a bankruptcy notice issued on 1 December 2005 and served on the debtor on 7 December 2005. 

2. The bankruptcy notice required the debtor to pay within 21 days the sum of $4,675 due to the creditor under an order of the Local Court North Sydney of 22 June 2005 for payment of the sum of $2,145 and an order of the District Court of New South Wales at Sydney in matter 05/12/1082 which required the debtor to pay the costs of the creditor in the sum of $2,530 within 28 days.  Each of the orders required payment of the moneys in question to the Local Court, North Sydney.  According to the affidavit of the debtor sworn on 30 June 2006 the District Court order was made on 4 October 2005. 

3. The creditor’s petition was amended to state that the respondent debtor owed the applicant creditor the amount of $3,675 (not $4,675) for costs as ordered by the Local and District Court.  It was acknowledged by counsel for the creditor that $1,000 was paid by the debtor to the creditor’s solicitors on 22 December 2005 as deposed to in the debtor’s affidavit of 30 June 2006.  Receipt of the cheque was acknowledged by the creditor’s solicitors by letter of 23 December 2005.  The cheque was presented and the amount of $1,000 debited to the account of the debtor on 6 January 2006. 

4. The applicant creditor relies on the creditor’s petition as amended, an affidavit of service sworn by John David Martin on 13 June 2006, an affidavit of Bruce Lum sworn on 13 July 2006, an affidavit of search and debt sworn by Bruce Lum on 17 July 2006 (replacing an earlier affidavit of search and debt) and an affidavit verifying the creditor’s petition sworn on 22 February 2006. 

5. The respondent debtor relies on a notice of intention to oppose the petition filed on 3 July 2006 in which he stated that he had made 12 attempts to settle this matter with the creditor’s solicitors, that he did not agree with the amount claimed in the creditor’s petition and that he was solvent and an affidavit sworn on 30 June 2006.  He also gave oral evidence and was cross-examined. 

6. In his affidavit of 30 June 2006 (prepared at a time when he was self-represented) the debtor gave evidence that he had been unable to pay the amount of $2,530 ordered in the District Court on 4 October 2005 within 28 days, that after the bankruptcy notice was issued he offered to pay the debt by instalments of $1,000 per month, that he paid $1,000 on 22 December 2005 and that he made numerous attempts to obtain the agreement of the creditor to this arrangement through her solicitors.

7. In oral evidence the debtor told the Court that he had assets which exceeded his liabilities by approximately $2.7 million.  A Land Tax Assessment Notice for the debtor for the 2006 tax year was tendered listing six properties.  He stated that most of his assets were real property and that although the properties produced income, at the moment he was negatively geared.  He explained that he was a builder/developer who bought and sold property.  He was in the process of selling one of his six properties which had an approximate value of $1 million and on which there was a mortgage of $228,000.  He told the Court that he had no other debts apart from the mortgages on the properties and an overdraft.  The properties were said to produce sufficient income to service the debts on them. 

8. In cross-examination the debtor explained that he was semi-retired, that he was in the process of selling one property and having purchased another prior to selling he had an overdraft secured against one of his properties which he was living off.  This was the reason he could not pay the full amount of the debt on which the bankruptcy notice was based at the time.  He agreed that at the time of service of the bankruptcy notice he had not had sufficient cash reserves to pay the full amount as he had just settled with his own lawyers, had a lot of debts to pay and had not increased his overdraft at that stage.  He explained that he was not in a position to pay the full amount claimed without selling one of his assets as it would leave him short in other areas.  However in re-examination he indicated that he had sufficient funds to pay the balance of the debt over two one-monthly payments. 

9. It is not disputed that on 17 July 2006 (the day before the hearing of the creditor’s petition) the solicitor for the applicant received a letter from the respondent’s solicitor enclosing a bank cheque in favour of the applicant for $1,800.  In his affidavit of search and debt of 17 July 2006 Bruce Lum, the solicitor for the applicant, deposed that on the same day he spoke to a person at the registry of North Sydney Local Court by telephone who advised that no money in respect of the judgment debts relied on by the applicant had been paid into the court.  In his affidavit Mr Lum, continued:

   As a result of my enquiries I believe that the Respondent has not paid the full amount owing to the Applicant and an amount of $1875.00 remains due and owing to the Applicant.

10. For the creditor it was submitted that service of the petition and the matters stated in the petition were established by the affidavit evidence.  

11. Counsel for the creditor acknowledged that the creditor’s petition was based on two debts owing to the creditor which, it was contended, amounted in the aggregate to $2,000 and could be relied upon consistent with ss.41(1)(b) and 44(1)(a) of the Bankruptcy Act 1966 (Cth). Contrary to the submissions for the debtor it was said to be clear that the bankruptcy notice could be based on two or more final judgments or final orders of the kind described in s.40(1)(g) of the Bankruptcy Act that, taken together, were for an amount of at least $2,000. It was pointed out that these provisions resolved the position under the previous legislation when only one judgment could be relied upon.

12. It was also submitted that the debts were still owing.  It was acknowledged that $1,000 had been paid, reducing the debt to the $3,675 referred to in the creditor’s petition, as amended, but contended that the affidavit of search and debt sworn by Bruce Lum on 17 July 2006 confirmed the outstanding amount.  It was submitted that while a bank cheque had been tendered for $1,800 (which, if accepted and applied to the outstanding debt, would bring the amount to $1,875) the affidavit was silent as to whether that amount was formally received. 

13. Moreover it was submitted for the applicant that even if the debt had been reduced by payment to less than the amount prescribed by s.44(1)(a) ($2,000) a sequestration may nonetheless be made consistent with the authority of in Re A Debtor; Ex parte The Petitioning Creditor [1917] 2 KB 60. It was contended that there was a debt of more than $2,000 when the act of bankruptcy occurred and when the creditor’s petition was presented and served and that the subsequent tender of $1,800 was not sufficient to remove the jurisdiction of the Court to make a sequestration order.

14. Counsel for the creditor submitted that as the definition of solvency was the ability to pay one’s debts as they fell due, the debtor, although a man of considerable equity, did not satisfy that test. On his own evidence he had said that he could not pay the debt when he first incurred it and he could not pay what was left of it now. On this basis it was suggested that any submission that the debtor was able to pay his debts or that there was sufficient cause not to make the sequestration order should be resisted. In the alternative, counsel for the creditor suggested that if the Court was impressed by the debtor’s ability or likely ability to pay the debt in the near future it should consider staying the operation of the sequestration order under s.52(3) of the Bankruptcy Act 1966. 

15. Initially the solicitor for the respondent contended that there was a fatal defect in the bankruptcy notice in that it included more than one final judgment or order. No other attempt was made to challenge the validity of the bankruptcy notice. In submissions in reply the solicitor for the debtor conceded that it appeared that the fact that the bankruptcy notice was based on more than one final judgment or order may no longer be a fatal flaw. However he maintained the submission that there was no longer a debt of $2,000 in existence as demonstrated by the affidavit evidence. It was submitted that, as acknowledged in the affidavit of Mr Lum, the debt was now the sum of $1,875 and that this indicated acceptance of the cheque for $1,800. It was contended that that amount would not satisfy s.44(1)(a) of the Bankruptcy Act.

16. It was also submitted that the evidence of the debtor established that he was able to pay his debts and on that basis the Court ought to dismiss the creditor’s petition under s.52(2) of the Act. It was contended that it was relevant to take into account the debtor’s realisable assets and that a $1 million property was already on the market and was realisable in relation to the remaining debt of $1,875. It was contended that a distinction ought to be drawn between a non-realisable asset and the realisable asset of a Byron Bay property which was on the market. Reference was made to what was said in Sarina v Council of the Shire of Wollondilly (1980) 48 FLR 372 by the Full Court of the Federal Court to the effect that if a debtor is able to pay his debts but is recalcitrant the creditors may resort to other means such as execution of his property and garnishee procedures but not to sequestration (also see Australia & New Zealand Banking Group Pty Ltd  v Foyster [2000] FCA 400). On this basis it was contended that it was totally inappropriate under s.52(2) for the Court to make a sequestration order.

17. Insofar as the debtor takes issue with the fact that the bankruptcy notice was based on two orders, since the insertion of s.41(1)(b) in the Act by the Bankruptcy Legislation Amendment Act 2002 (which came into effect on 5 May 2003) two or more judgment debts can be combined and included in the same bankruptcy notice. Section 44(1)(a) was satisfied at the time of presentation of the creditor’s petition.

18. It is however necessary to consider the matters of which proof is required at the hearing of the creditor’s petition under s.52 of the Bankruptcy Act. Proof of the matters stated in the creditor’s petition at the time it was issued was not disputed by the debtor. Nor was service of the petition. Section 52(1)(c) requires proof by the creditor of the fact that the debt or debts on which the petitioning creditor relies is or are still owing at the time of the hearing of the creditor’s petition. The debt relied on in the creditor’s petition, as amended, is the sum of $3,675 (reflecting the fact that an amount of $1,000 was paid to the applicant’s solicitors in December 2005). There is no doubt that a debt of $3,675 was due at the date of commission of the act of bankruptcy relied on and at the date of presentation of the creditor’s petition. Hence at that time a debt of $2,000 was owing to the creditor as required under s.44 of the Act. What is in issue is the position at the date of the hearing of the creditor’s petition and the effect of the forwarding of a bank cheque by the debtor to the creditor’s solicitors on 17 July 2006.

19. It was contended for the creditor that there is authority (Re A Debtor; Ex parte The Petitioning Creditor) that if a debt is reduced by a payment to less than the amount prescribed (in this case $2,000 is prescribed by s.44(1)(a)) a sequestration order may nonetheless be made. However Re A Debtor was a case in which, while there had been a part-payment by the debtor, there was nonetheless a debt owing at the time of the hearing which exceeded the amount required for the making of the English 1917 equivalent of a sequestration order (a receiving order).  A Registrar had adjourned the petition in order to give the debtor the opportunity of discharging the debt.  The English Court of Appeal found that the Registrar had erred and was bound to make a receiving order. 

20. There is also authority that whether or not a petition should be dismissed where the debt of the petitioning creditor has been paid and another creditor substituted as petitioning creditor is a matter for the discretion of the Court (see Re Conomo (1960) 18 ABC 174). In this case there is no creditor seeking substitution. There has been, at least, tender of the amount of $1,800 which, if regarded as payment, raises the question of whether the debts on which the petitioning creditor relies are still owing. It is well established that a creditor with knowledge of an act of bankruptcy committed by a debtor is justified in refusing to accept payment (Re Lowe; Ex parte Lowe (1890) 7 Mor 25).  Even if a debtor admits a debt and pays the money into court the petitioning creditor is not bound to accept payment by taking the money out of court, but may proceed with the petition (Re Gentry [1910] 1 KB 825; McIntosh v Shashoua (1931) 46 CLR 494 at 495). In such circumstances the debtor cannot set up the tender to reduce the debt below the requisite amount for a sequestration order.

21. In Rigby v Beames [2002] FMCA 101 it was suggested that the mere holding of a cheque by the creditor’s solicitors (without it being banked or presented for payment) was not such as to prevent the creditor issuing or proceeding with a creditor’s petition based on the debt. However in that case the cheque was delivered before the creditor’s petition was presented and the solicitors for the creditor advised the debtor that the creditor reserved his rights in relation to the cheque. Thereafter the debtor advised that he had effected a ‘stop payment’ on the cheque.

22. In Re Buckley; Ex parte James Hardie & Co. Pty Ltd [1978] 27 FLR 496 a debtor tendered cheques in full payment of a debt relied on by a creditor seeking to be substituted as petitioning creditor before the hearing date. The evidence was that the solicitor for the creditor stated that the cheques were accepted not as payment, but on the basis that he would deposit them in his trust account and obtain instructions from his client. He deposited the cheques into his trust account and issued receipts to the debtor’s solicitors. Subsequently the creditor instructed its solicitor that it would not accept payment. However the cheques were not returned and the amounts were not refunded. The debtor submitted that the debts on which the applicant for substitution relied had been paid. Initially Riley J made an order for substitution on the basis that a tender of payment by a debtor after presentation of a petition need not be accepted by the creditor (See Re Conomo).  However after a further hearing his Honour rescinded the order for substitution on the basis that the debtor had paid the debts. 

23. His Honour found that the solicitor for the creditor was the agent for the creditor with apparent authority to receive payment of the money (being costs ordered to be paid to the creditor in Supreme Court proceedings).  It was held that the sending of the receipts to the debtor’s solicitor (without any explanation) constituted an election to accept the tender communicated to the debtors.  In the alternative Riley J accepted that the creditor was precluded from denying payment on principles of estoppel by conduct by the issuing of the receipt. 

24. In this instance there was a tender of a bank cheque in the amount of $1,800 to the creditor’s solicitors in circumstances where the debtor was aware that an earlier tender of payment of $1,000 made in the same way had been accepted by presentation of the cheque.  There is no evidence that the solicitor for the creditor advised the solicitor for the debtor that the creditor reserved his rights.  Nor is there any evidence that the cheque was returned to the debtor or his solicitors. 

25. Nonetheless, were this the only evidence before the Court I would not be satisfied that the tender to the creditor’s solicitors had been accepted and constituted payment of part of the debt.  However in addition, the affidavit of search and debt sworn by the solicitor for the creditor refers to receipt of a bank cheque for $1,800 and states that “As a result of my enquiries I believe that the Respondent has not paid the full amount owing to the Applicant and an amount of $1,875.00 remains due and owing to the Applicant”.  I accept this evidence from the solicitor for the creditor.  I am satisfied that this means that the payment of $1,800 towards the debt has been accepted.  While no receipt has been issued by the creditor or her solicitors, this affidavit evidence of the solicitor for the creditor who, consistent with the principles considered in Re Buckley, apparently had authority to receive payment of the debt which consisted of costs ordered to be paid to the creditor (see the Fines Act 1996 (NSW) and Klewer v Walton [2004] FCAFC 284) and who had received payment of the sum of $1,000 from the debtor in December 2005, makes it clear that the amount now owing to the creditor is $1,875, not $3,675. On this basis, while part of the debt on which the petitioning creditor relies is still owing, the debt is no longer a debt owing to the creditor that amounts to $2,000. There is no evidence before the Court of any other creditors (apart from secured creditors). There is no application for substitution of a petitioning creditor. In these circumstances I am not satisfied under s.52(1) of the Bankruptcy Act that I should make a sequestration order against the estate of the debtor.

26. Moreover, even if I am wrong and there has been a mere tender of $1,800 which has not been accepted by the creditor, in all the circumstances of this case I am satisfied by the debtor under s.52(2)(a) that he is able to pay his debts and also that for other sufficient cause a sequestration order ought not to be made (s.52(2)(b)) and the petition should be dismissed.

1. First, while the debtor did not file affidavit evidence to establish his solvency, he gave oral evidence of substantial real estate interests and of assets exceeding his liabilities by $2.7 million.  He admits that he has a temporary liquidity problem while he realises one of those assets (in circumstances where he has already purchased another property in relation to which he is relying on bridging finance).  He told the Court that apart from the mortgages and overdraft secured on one of the properties he had no debts other than the amount still owing to the petitioning creditor.  He has made numerous attempts to get the agreement of the creditor to payment by instalments of $1,000 per month.  There is nothing to suggest that if such agreement had been forthcoming the debtor would not have paid all of the debt by now.  His remaining indebtedness is less than the amount required to found a bankruptcy notice and creditor’s petition. 

2. It is well established that a debtor who is in a position to pay all the debts he owes within a reasonable time ought not to be subject to a sequestration order (Re Sarina; Ex parte Wollondilly Shire Council (1980) 43 FLR 163 and Sarina v Wollondilly Shire Council at 376).  As stated in Sandell v Porter (1966) 115 CLR 666 at 670 the funds treated as being available to the debtor to assess his ability to pay his debts in this sense “… are not limited to his cash resources immediately available.  They extend to moneys which he can procure by realisation by sale or mortgage or pledge of his assets within a relatively short period – relative to the size of the debts and to the circumstances, including the nature of the business of the debtor”.

3. The debtor bears the onus of proving his assets are sufficient to pay his debts.  He has significant net assets relative to the size of the debt.  The debtor told the Court he is a semi-retired builder/developer, that the value of his real estate exceeds his debts by $2.7 million and that (apart from the debt owing to the petitioning creditor), his debts are secured by mortgage on his properties.  There is no evidence of any other debts that will become payable in the reasonably immediate future.  The mere fact that the debtor’s assets exceed his liabilities would not suffice if the assets were not presently available or realisable (Stankiewicz v Plata [2000] FCA 1185 at [26] – [32]). On his own evidence the debtor is not in a position to pay the balance of the debt in full immediately from his own money – but says he can do so over two months. The test under s.52(2)(a) does not necessarily require the debtor to have sufficient cash at hand to pay all creditors in full immediately where he has other realisable assets (Re Sarina).  The debtor relies primarily on his capacity to sell a property which is presently on the market (although he has made part-payments from other funds available to him).  There is nothing to suggest that the debtor’s assets could not be reached by any form of execution (Stankiewicz v Plata [2006] FCA 1185 at [26] – [32] and Dunn, in the matter of Dunn v Vangsnes [2000] FCA 1051 at [17] – [23] per Hely J).

4. Further, even if on a strict view the debtor cannot be said to be able to pay his debts, I am satisfied by him that all the circumstances constitute sufficient cause that a sequestration order ought not to be made.  (See Cain v Whyte (1939) 48 CLR 639). The debt of the petitioning creditor is small relative to the debtor’s overall financial position. Even if funds are not immediately or imminently realisable by the debtor because he is dependent on the sale of real estate, there is nothing to suggest that he has more than a temporary liquidity problem. There is no evidence of any creditor (apart from secured creditors) other than the petitioning creditor. The debtor has repaid (or at least tendered) part of the debt on two occasions. On the evidence of the creditor’s solicitor the amount of the debt is now less than $2,000. In any event, the tender of the amount of $1,800 on 17 July 2006 while not of itself constituting “sufficient cause” within s.52(2)(b) (McIntosh v Shashoua (1931) 46 CLR 494) is a factor relevant to the exercise of the court’s discretion (Australia & New Zealand Banking Group v Coutts [2003] FCA 968 at [10] and [41] – [42] per Conti J and see Re Debtor Ex parte Lawrence [1928] Ch 665). The debtor has also sought to make an arrangement for repayment of the balance of the debt which he should be in a position to repay over a relatively short period of time. I do not however consider it appropriate to make a sequestration order, and stay its operation as suggested by counsel for the applicant.

5. In all the circumstances of this case I consider that it has been established that for other sufficient cause a sequestration order ought not to be made   Hence the petition should be dismissed.  I will hear submissions in relation to costs. 

I certify that the preceding thirty-one (31) paragraphs are a true copy of the reasons for judgment of Barnes FM

Associate: 

Date:  24 August 2006