Westpac Banking Corporation v Hughes
[2008] FMCA 424
•15 April 2008
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| WESTPAC BANKING CORPORATION v HUGHES & ANOR | [2008] FMCA 424 |
| BANKRUPTCY – Applications to review sequestration order made by Registrar – solvency asserted on basis of selling matrimonial home – necessity for prompt resolution – consideration of Totev v Sfar. |
| Bankruptcy Act 1966, ss.52, 52(1), 52(2), 153B Bankruptcy Rules 2006, r.4.06 |
| Totev v Sfar [2008] FCAFC 35 Walton v Keller [2005] FMCA 878 Kyriacou v Shield Mercantile Pty Ltd (No.2) [2004] FCA 1338 |
| Applicant: | WESTPAC BANKING CORPORATION |
| First Respondent: | DIANE JANE HUGHES |
| Second Respondent: | KEITH THOMAS BAGOT HUGHES |
| File Number: | MLG 832 of 2007 |
| Judgment of: | Burchardt FM |
| Hearing date: | 7 March 2008 |
| Date of Last Submission: | 7 March 2008 |
| Delivered at: | Melbourne |
| Delivered on: | 15 April 2008 |
REPRESENTATION
| Counsel for the Applicant/Respondent: | Mr P. Fary |
| Solicitors for the Applicant/Respondent: | Gadens Lawyers |
| Counsel for the Respondents/Applicants: | Mr D. Moller |
| Solicitors for the Respondent/Applicants: | Lennon Mazzeo Lawyers |
| Counsel for the Trustee: | Mr J. Sinisgalli |
| Solicitors for the Trustee: | Hunt & Hunt |
| Counsel for the Australian Taxation Office (Supporting Creditor): | Ms Nguyen |
| Solicitors for the Australian Taxation Office (Supporting Creditor): | Australian Taxation Office Legal Services Branch |
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT MELBOURNE |
MLG 832 of 2007
| WESTPAC BANKING CORPORATION |
Applicant
And
| DIANE JANE HUGHES |
First Respondent
| KEITH THOMAS BAGOT HUGHES |
Second Respondent
REASONS FOR JUDGMENT
Introduction
This matter has had a relatively lengthy history. It is highly desirable in the interests of all concerned that it be brought to a conclusion as quickly as is in any way properly possible. For that reason, and because I have come to a clear view as to what the outcome should be, these reasons are going to be shorter rather than longer.
Mr and Mrs Hughes seek a review of sequestration order made against their estates by a Registrar of this Court on 23 October 2007. They do so on the express basis that they are solvent (see Outline of the Applicants on the application – paragraph 4, and oral submissions).
For the reasons that follow I have come to the conclusion that the sequestration order made against Mrs Hughes should be annulled and the creditor’s petition (“petition”) reinstated and that the application made by Mr Hughes should be dismissed.
Preliminary Matters
It is clear from the recent decision of the Full Court of the Federal Court in Totev v Sfar [2008] FCAFC 35 (“Totev”), (Emmett, Bennett and Cowdroy JJ) that this proceeding is a hearing de novo and
the judge who hears the review application must hear the petition afresh and must be satisfied as to the matters referred to in section 52 of the Bankruptcy Act. (per Emmett J at [14])
I am therefore required to be satisfied with the proof of the matters stated in the petition, the service of the petition and the fact that the debt upon which the petitioning creditor relies is still owing, additionally to also exercising afresh the discretions conferred by s.52(2) of the Bankruptcy Act 1966 (“the Act”).
Given that the affidavits referred to in r.4.06 of the Bankruptcy Rules 2006 (“Bankruptcy Rules”) have already been twice the subject of affidavits in the course of this proceeding and given that there has been no challenge in respect of the matters to which those affidavits would refer, I am minded to exercise my discretion to waive compliance with the Bankruptcy Rules in this instance.
It should be noted that the decision of the Full Court in Totev had not been handed down at the time I heard this matter and no submissions about this aspect of the proceeding, nor the nature of the court's functions upon a review de novo, were made, naturally enough, to me.
It is clear, however, from the judgment of Emmett J at [18] and Bennett J at [52] in Totev that the Court may in an appropriate case proceed in this way. Given that, inter alia, the history of this matter discloses orders for substituted service and a clear concession that the original debt upon which the creditor relies has not been satisfied, it is appropriate, in my view, in this instance, to waive compliance with the Bankruptcy Rules so that no further affidavits need to be filed.
It is apparent to me from the materials filed that I should be satisfied that the matters referred to in s.52(1) have been established. The affidavit already filed verifying the petition, service of the petition and the fact that the debt on which the petitioning creditor relies is still owing are, in my view, sufficient.
Solvency
As I have said, it is the position of Mr and Mrs Hughes that they are solvent. They have filed copious affidavit material attesting to their assets and debts.
I accept the submission from the petitioning creditor that bankruptcy is not a balance sheet. It is rather, a matter of ascertaining whether or not, to use the words of s.52(2) of the Act, Mr and Mrs Hughes are able to pay their debts.
It is, however, well established that the capacity of a debtor to pay their debts is not determined merely by the cash resources immediately available. They extend to moneys which they can procure by realisation by sale or by mortgage of assets within a relatively short time relative to the nature and amount of the debts and the circumstances, including the business, of the debtor (Sandell v Porter (1966) 115 CLR 666).
Driver FM has relatively recently decided that the selling of a home by a debtor is a permissible means of meeting such a debt in Walton v Keller [2005] FMCA 878 at [31]. Although each case will fall to be determined on its merits, I respectfully agree with Driver FM. Accordingly, I am bound to follow Driver FM's decision. It is clearly not plainly wrong. To the contrary, I think it is right.
This is important because, although there is considerable controversy before me as to the precise state of the financial affairs of both Mrs Hughes and Mr Hughes, the position that they jointly adopt is that Mrs Hughes will sell the family home in Richmond and discharge not only her own debts but also those of her husband, Mr Hughes, from the net proceeds of sale.
The competing assertions of the parties are conveniently summed up in an aide‑memoire that I have marked as MF1. All parties, as I understand it, accept that it is an accurate tabulation of the competing assertions of the parties as therein set out.
Only the Trustee's affidavit has Mrs Hughes in deficit, if she is allowed to sell her home, of which she is the sole registered proprietor. The Trustee's affidavit makes no allowance for the shares that Mrs Hughes has attested that she owns. I accept that she owns shares to a sum well in excess of the $32,481.00 deficit asserted by the Trustee.
In any event, I found Mr Welch, the expert valuer called on behalf of Mr and Mrs Hughes, an extremely impressive witness. While it is of course the case that he cannot foresee the future, and his evidence as to the value of the property upon sale must be approached with that caution well in mind, the fact is that this was a person who not only plainly had a very considerable experience in valuations but who gave his evidence in a compelling fashion. He answered all cross‑examination, in my view, entirely credibly and I accept his evidence.
Accepting, as I do, therefore that the Richmond property is worth $1.5 million it is clear on any view that Mrs Hughes has, provided she sells the family home promptly, assets to discharge her debts.
Counsel has already submitted on Mrs Hughes' behalf that she will sell the Richmond property expeditiously and apply the funds so received both to her own debts and those of her husband.
It should be noted that the Court's powers under s.52(2) of the Act are in every sense discretionary. Once the Court is satisfied as to the matters contained in s.52(1) of the Act the Court may dismiss the petition if it is satisfied that the debtor is able to pay their debts or that there is other sufficient cause why a sequestration order ought not be made.
In this instance what I am minded to do is to accept a formal undertaking from Mrs Hughes to the Court that she will indeed sell the family home and otherwise discharge her debts within a very short period thereafter.
If that undertaking is given, and subject to refinement as to the times concerned, I would be minded to order that the sequestration order be annulled and that the creditor’s petition be reinstated and the proceeding on that petition be adjourned until the sale process has been completed.
It seems to me appropriate to proceed in this way, both because as I find Mrs Hughes is solvent within the meaning of the legislation and because in the ultimate it is highly probable that the Trustee would proceed in this way in any event. No discernible harm is done to the creditors and a proper benefit is provided to Mrs Hughes by this course of action.
I should interpolate that I have decided to annul the bankruptcy pursuant to s.153B of the Act, rather than merely to set it aside. This is not a case of the sort identified by Weinberg J in Kyriacou v Shield Mercantile Pty Ltd (No.2) [2004] FCA 1338, where the Trustee has acted precipitately or otherwise inappropriately. The Trustee should be entitled to recoup the costs of the administration from the assets of the debtor.
The misfortunes that have befallen Mr and Mrs Hughes seem to me on the evidence to be very much of their own making. While I accept that they have sworn that they were never served with the bankruptcy notice, it is clear from the evidence as a whole that the way in which they have dealt with correspondence generally has been extraordinarily lackadaisical for a couple who, between them, were carrying on a legal practice.
Furthermore, I found their evidence about the manner in which they dealt with their mail to be inherently improbable and, frankly, am not able to accept it. I think they were served with the bankruptcy notice but simply chose to ignore it.
In all of the circumstances, it is appropriate that the bankruptcy be annulled, rather than simply set aside.
Mr Hughes
Mr Hughes is, on any version of the matter, insolvent. He has debts substantially in excess of any assets he may be said to have.
Some of these debts go back for many years, including, worryingly, debts payable to the Law Institute of Victoria.
Mr Hughes sought to explain the history with the Law Institute of Victoria, as I understood it, as being one in which he had accrued debts to the Institute from time to time and that he had simply paid, as it were, block sums of money in satisfaction of the amounts owing, rather than allocating the funds he advanced to the Institute to any particular debt.
I find this evidence, given by a practising solicitor, very unsatisfactory and unconvincing. The picture that emerges to me from Mr Hughes' affidavit material and from his evidence is that he has been essentially insolvent for a long time. He has paid but poor regard to the orders properly made against him in the Institute's favour.
I am not satisfied that Mr Hughes is able to pay his debts. Indeed his case proceeds solely on the footing that his wife will discharge them for him.
While I accept that the wife's expressed intention to pay his debts is capable of grounding a finding that meets the requirements of s.52 of the Act, Mr Hughes' history in relation to his debts is such that I think it is inappropriate to exercise my discretion in his favour pursuant to s.52 to set aside the creditor's petition.
In the event of course that Mr Hughes' debts are paid by his wife, then necessarily his bankruptcy will cease at that point.
Conclusion
For these reasons, in which I have dealt with the evidence in an admittedly somewhat cursory way, it seems to me that the sequestration order made against Mrs Hughes should cease, subject to her giving the undertakings to which I refer, and that against Mr Hughes should continue.
It is not entirely clear, at least to me, what should be the proper form of orders in these circumstances.
In the case of Mr Hughes I will make a sequestration order. It is not wholly clear to me whether I should also in the light of Totev, dismiss Mr Hughes' application to review the registrar's decision.
I will hear the parties as to the appropriate form of Orders I should make to give effect to these reasons for judgment, and to hear any related arguments that the parties may wish to put arising out of Totev v Sfar.
I certify that the preceding thirty-eight (38) paragraphs are a true copy of the reasons for judgment of Burchardt FM
Associate: Brooke Evans
Date: 15 April 2008
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