Wesfarmers Landmark (Qld) Pty Ltd v Darley
[2008] FMCA 1003
•14 May 2008
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| WESFARMERS LANDMARK (QLD) PTY LTD v DARLEY | [2008] FMCA 1003 |
| BANKRUPTCY – Sequestration – failure by the debtor to comply with or respond to bankruptcy notice – question of whether or not the debtor is entitled to have the application dismissed on the basis that he is able to pay his debts or that there is other sufficient cause justifying the dismissal of the application. |
| Bankruptcy Act 1966 |
| Sandell v Porter (1966) 115 CLR 666 |
| Applicant: | WESFARMERS LANDMARK (QLD) PTY LTD |
| Respondent: | KEVIN DARLEY |
| File Number: | BRG 934 of 2007 |
| Judgment of: | Burnett FM |
| Hearing date: | 14 May 2008 |
| Delivered at: | Brisbane |
| Delivered on: | 14 May 2008 |
REPRESENTATION
| Counsel for the Applicant: | Mr Morgan |
| Solicitors for the Applicant: | Forbes Dowling Lawyers |
| The Respondent appeared on his own behalf |
| Counsel for the supporting creditor: | Mr McKechnie |
| Solicitors for the supporting creditor: | Porter Davies Lawyers |
ORDERS
That a sequestration order be made in respect of the debtor, Kevin Darley, subject to:
(a)such order be stayed for a period of 21 days from the date of this order; and
(b)sequestration order made be vacated in the event that the debtor pay the following sums within 21 days of today's date:
(i)$65,000.00 to Forbes Dowling Lawyers in discharge of the indebtedness including costs to Wesfarmers, the applicant creditor; and
(ii)$8360.00 to Porter Davies Lawyers.
That the respondent pay:
(a)the costs of and incidental to Porter Davies in the application to be assessed; and
(b)the costs for today of the applicant creditor to be assessed, if not agreed.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT BRISBANE |
BRG 934 of 2007
| WESFARMERS LANDMARK (QLD) PTY LTD |
Applicant
And
| KEVIN DARLEY |
Respondent
REASONS FOR JUDGMENT
Ex Tempore
This is an application brought by Wesfarmers Landmark Queensland Pty Ltd for the sequestration of the respondent, Kevin Darley. The application is premised upon a judgment entered by the creditor against the debtor for a sum of $47,185.89 on 6 September 2007 in the District Court at Brisbane. Following the granting of judgment, a bankruptcy notice issued on 21 September 2007. It was served by post on 25 September 2007 and service is deemed to have been effected the fourth business day after which is 2 October 2007.
There was a failure by the debtor to comply with or respond to the notice on or before 23 October or by that date to satisfy the Court that he had a counterclaim, set off or cross demand equal to or exceeding the specified sum in paragraph 1 of the bankruptcy notice being a counterclaim, set off or cross demand that he could not have set up in the action in which the judgment referred to in the bankruptcy notice was obtained. That failure occasioned an act of bankruptcy and entitled the creditor to bring its creditor's application which issued on 25 October 2007.
The matter first came before me on 27 February 2008. I should note that, in the course of debate, I made an observation of having come on before me in, from memory, in late 2007. That was clearly incorrect.
The debtor does not deny the debt or his failure to respond to the bankruptcy notice and implicitly, therefore, his commission of an act of bankruptcy.
In all respects it would seem from the material read on behalf of the creditor that the matters stated in the petition have been verified; the service of the petition has been established; and the fact that the debt on which the petitioning creditor relies, is still owing. Accordingly, prima facie, the creditor is entitled to its order. The real question in this application is whether or not in this instance, the debtor is entitled to have the application dismissed pursuant to s.52 subs.2 on the basis that he is able to pay his debts or that there is other sufficient cause justifying the dismissal of the application.
He filed an affidavit on 31 January 2008. Broadly, in his affidavit, he deposed to the fact that he was an unregistered mortgagee of a property which was owned by Mr and Mrs Kerr and which was subject to earlier equities which were registered and had priority to him. It was apparent that the Kerrs were in default in respect of those mortgages and the principal mortgagee had entered into possession of the property and was purporting to exercise its powers of sale.
There was to be an auction held in early March and it was anticipated that the property would achieve a sale price in the order of three and a half million dollars which, having regard to the indebtedness of the first and second mortgagee and also the unregistered interest of Mr Darley, would realise more than sufficient to discharge all that indebtedness. Once the debtor was in receipt of that sum he would then be in a position to discharge his obligations to the creditor.
He also indicated, at that time, that he was the owner of some joint assets although those assets were not particularised although it later came to pass that the principal asset was an interest in a rural property in Northern New South Wales.
It was on the basis of those matters that on that occasion I granted an adjournment to 26 March to await the outcome of the auction anticipating that, by that time, if the auction had proceeded and the mortgagee had been able to realise a reasonable price, the subject property would have gone to contract and there would have been some reasonable expectation of the debtor receiving that sum which was owed to him which at the time was about $120,000.00. On its face that sum would have been more than sufficient to discharge the debt to the creditor.
The matter came back before me on 26 March for review although it was not actually heard before me until 2 April. On that occasion, I was informed that the auction had proceeded, the property had been passed in at a sum approaching $3.5 million and that there were negotiations on foot with a view to a contract being concluded but, at that time, no contract had been concluded. It seemed at least, prima facie, at that time that the matters which the debtor had informed the Court of had come to pass and there were realistic prospects of the debtor's money being released and he being in a position to discharge his obligations.
In addition, on that occasion, the debtor included in his affidavit what could be described, broadly, as a personal balance sheet which indicated that, overall, his net worth was something approaching one million dollars when one had regard to his interest in property. Although in saying that, that was to attribute a full value to him of an interest in his pastoral property which, I understand, in fact, is only owned by him as a joint tenant with his wife. In any event, even discounting his wife's interest, he had about a half a million dollars net equity which, again, should have been more than sufficient to ensure he was able to make appropriate arrangements to discharge his obligations to the creditor.
Unfortunately, however, most of those assets were not liquid assets in the sense that they comprised, principally, land. They comprise, as I have already indicated, an interest in the pastoral property, money owing which was secured by the unregistered mortgage over the property at Hamilton which was the subject of the auction and, in addition, plant and equipment which, perhaps, could be described as the most liquid or readily realisable of his assets.
In any event, having regard to the fact that negotiations were ongoing for the sale of the Hamilton property, being the property the subject of the exercise of power of sale, the matter was further adjourned to 16 April in the expectation that by that time the Court would be informed of the conclusion of an agreement and a date for payment of the debt might appear.
Immediately prior to that date, namely 15 April, the debtor filed a further affidavit. In that affidavit, he fleshed out the matters identified in his personal balance sheet. There was an appraisal of the value of his rural property of $1.18 million. That matter I should say was confirmed orally by the real estate agent who was contacted during the course of the hearing on the occasion of 16 April who confirmed that appraisal. So, as at that time, things looked largely to rely principally upon the release of the funds that were tied into the litigation involving the Kerr's property at Hamilton.
On the occasion of 16 April, however, a further creditor appeared that being the solicitors, Porter Davies, who sought to intervene they claimed in respect of a debt which they claim was based on a claim for outstanding legal fees in the sum of $8360. They, too, appeared on the application and stand behind the creditor and would make application for substitution in the event that the Wesfarmers' debt is discharged. In any event, having regard to those matters and the fact that it appeared that there were ongoing discussions in relation to the property at Hamilton, the matter was further adjourned to today's date.
On that last occasion, there was also a clear indication to Mr Darley that he should not anticipate or should not proceed in anticipation of his money being readily being released from the Hamilton property and that he should consider using other assets as collateral to secure sufficient funds to discharge his debts to the applicant creditor and the substituted creditor.
In turn, the application was again adjourned and was adjourned to today's date. Despite that opportunity, things have not advanced. Indeed, it would seem having regard to the most recent material filed by the debtor today that the position in relation to the Hamilton property has become even further mired in litigation. The debtor has, in fact, now made application to the Supreme Court for relief involving the first mortgagee who, it seems at least on a reading of his material, is seeking not only to exercise powers of sale as it is permitted to do as first mortgagee but also negotiate on a basis that protects its position as an unsecured mortgagee standing behind the debtor's unsecured mortgage in terms of priority.
That particular application is returnable on 20th of this month in the Supreme Court. From a review of the papers, it has all the hallmarks of an application. Whilst it may be expressed in the form of an originating application it is unlikely to be resolved on that occasion and, more likely than not, is a matter that is going to be adjourned to that Court's trial list for disposition in the ordinary course. In summary, it seems to me having regard to the matters identified in the originating application returnable in the Supreme Court on 20 May that there is going to be no quick release of the funds that are tied up in the Hamilton property.
In addition, that affidavit has attached to it, a document entitled "Mandate in irrevocable authority" addressed to Prudential Finance Pty Ltd which appoints that company as the debtor's exclusive finance agent to act as the debtor's finance broker in order to secure funds in the amount of about $245,000.00 to be secured by first mortgage over the pastoral property. Of course, that application has been made very late and there is no answer to the application. It is uncertain as to whether or not the debtor will succeed in obtaining that funding. I note the debtor complains that, by reason of these proceedings, he has or he says he has not been able to sell his property and that, in fact, the only offers he has received in respect of the property are offers to purchase the property for a sum approaching about $250,000.00.
Whilst, I accept the debtor regards those offers as outrageous and scandalous given his own assessment of the value of the property which assessment is supported by the local real estate agent, it may be that, in fact, the offers indicate that perhaps the opinions of both the debtor and his agent are somewhat ambitious in the circumstances. In any event, it would seem that the application for finance does not appear to be entirely unrealistic having regard to that other evidence. The only other question of course which will no doubt be agitated in the mind of the financier is that of cash flow and therefore the prospect of the debtor being able to repay that debt and any interest that might accrue in respect of the debt in the event that the debtor is unable to meet those obligations.
When considering questions of solvency, the principles now well settled. In Sandell v Porter[1], Barwick CJ, said this:
“The conclusion of solvency 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 utilising such cash resources or can command through the use of his assets to meet his debts as and when they fall due which indicates insolvency. Whether that state of affairs has arrived is a question for the Court.”
[1] (1966) 115 CLR 666
In this case, having regard to the overall circumstances, it strikes me that despite now almost six months of opportunity to obtain alternative cash, it seems to me that the overwhelming balance of evidence is now supporting the view that the debtor's position does not reflect a temporary lack of liquidity but rather something more terminal. He has submitted that he needs only another seven to 14 days to finalise the latest arrangement which, he believes, will be productive of cash and which would enable him to discharge his debts.
It would in the ordinary course seem consistent with the remarks of Barwick CJ, that someone with the assets that the debtor claims to have at a value that he says they have, that they be sufficient to use as collateral to obtain the cash to enable him to meet the debts that he has. Overall, however, I am quickly losing confidence of his capacity to do so having regard to the extensive history of this matter and the number of adjournments and opportunities that he has been afforded to go away and make arrangements.
I am, however, mindful that he does make a submission that he has only a need for a short period of time to finalise this one last option. Otherwise it seems inevitable that he would be unable to rehabilitate his financial position. So I propose to make an order for sequestration, however, I will stay the effect of that order and vacate it in the event that within the 21 days he is able to discharge the debts both to the applicant creditor and the putative substituted creditor.
I certify that the preceding twenty-four (24) paragraphs are a true copy of the reasons for judgment of Burnett FM
Associate: Beverley Schmidt
Date: 24 July 2008
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