Wilson v Richards
[2018] VCC 1755
•8 November 2018
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE COMMERCIAL DIVISION | Revised Not Restricted Suitable for Publication |
GENERAL LIST
Case No. CI-16-05583
| PETER WILSON & ANOR | Plaintiffs |
| V | |
| KENNETH NORMAN RICHARDS & ORS | Defendants |
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JUDGE: | HER HONOUR JUDGE A RYAN | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 4 and 5 October 2018 | |
DATE OF JUDGMENT: | 8 November 2018 | |
CASE MAY BE CITED AS: | Wilson & Anor v Richards & Ors | |
MEDIUM NEUTRAL CITATION: | [2018] VCC 1755 | |
REASONS FOR RULING
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Subject: DEBT RECOVERY
Catchwords: Judgment debt – Registrar refused to make an instalment order – notice of objection filed against refusal to make order – de novo hearing - applicable considerations
Legislation Cited: Judgment Debt Recovery Act 1984 (Vic)
Cases Cited: Australian Institute of Fitness (Vic & Tas) [2016] NSWSC 1143
Davidson v Greedy [2012] VSC 202
EL & C Baillieu Stockbroking Ltd v Adicho [2010] VCC 1143
Hellier Capital Pty Ltd v Richard Albarran [2009] NSWSC 403
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr M Hoyne | DSA Law |
| For the Defendants | Mr S Maiden QC | Gadens |
HER HONOUR:
1 The first defendant (“Richards”) and the second defendant (“Shergold”), seek orders they be permitted to pay the balance of two judgment debts by instalment.
2 The application relates to judgment debts presently owed by Richards and Shergold jointly and severally to the first plaintiff (“Peter Wilson”) and the second plaintiff (“David Wilson”).
3 On 23 February 2018, orders were made that Richards and Shergold (as well as the incorporated third and fourth defendants) jointly and severally pay:
(i)Peter Wilson the sum of $733,000 plus interest fixed in the sum of $13,455.07, together with costs of the application; and
(ii)David Wilson the sum of $733,000 plus interest fixed in the sum of $13,455.07, together with costs of the application.
4 On 16 May 2018, Richards and Shergold filed applications under s6(7)(a)(i) of the Judgment Debt Recovery Act 1984 (Vic) (“the Act”). They applied for instalment orders jointly in respect of the balance of the judgment debts owed by them jointly and severally to Peter Wilson and David Wilson.
5 The proposal for instalments is to pay the debt owing to Peter Wilson in 57 equal monthly instalments of $15,850 with the final 58th payment of $15,560 to be made in February 2023. The same proposal is made in respect of the debt due to David Wilson.
6 The judgment debtors claim they lack the financial capacity to pay the judgment debt immediately but have a demonstrated capacity between them to pay the judgment debts and interest in full over the period proposed.
7 On 2 July 2018, Deputy Registrar Johnson refused the judgment debtors’ applications to pay the judgment debts by instalment. This order was made ex parte.
8 Richards and Shergold filed notices of objection on 18 July 2018 in respect of the Deputy Registrar’s refusal to make the instalment order sought.
9 The hearing of the objection application was conducted over two days on 4 and 5 October 2018. Both Richards and Shergold gave some further evidence in chief at the hearing which was limited in scope. They were cross-examined extensively by counsel for the judgment creditors.
10 Richards relied upon affidavits sworn by him on 9 May, 16 May, and 26 August 2018. The affidavits relied upon by Shergold were sworn on 9 May, 16 May, and 27 August 2018.
11 The plaintiffs relied upon three affidavits sworn by their solicitor, Joseph Di Mauro, on 2 August, 8 August, and 1 October 2018.
12 The parties filed written submissions. The plaintiffs’ submissions were dated 22 August 2018 and the defendants’ submissions dated 29 August 2018.
13 An earlier application by the judgment debtors to seek instalment orders was successful but the ex parte order made was subsequently set aside by Judge Macnamara on 14 May 2018. The reason being the earlier applications were defective in form. They had not been validly made under s6 of the Act, because the offers to pay by instalment were made on the basis that the judgment debtors would pay one half of the total debt each, rather than on a joint and several basis. Some instalments were paid under the earlier application, but ceased following those orders being set aside.
14 Between April 2018 and 20 June 2018, the judgment debtors have paid the sum of $110,950 to the plaintiffs.
15 If an instalment order is made, the judgment debtors are in a position to immediately pay the sum of $79,250, representing payments between June and September 2018.
Legislative framework
16 Under s6(1) of the Act, a judgment debtor may apply “for an order that the judgment debt or the balance of the judgment debt then owing to the judgment creditor be paid by instalments”.
17 Judgment debt is defined in section 3 to mean “the amount of money recoverable or payable under and in respect of a judgment”.
18 Under s6(2) of the Act, the application must specify the amount of each instalment and the times at which they are proposed to be paid. The proper officer may order that the amount be paid by the instalments and at the times specified in the application, or refuse to make such an order (s6(3)). Such an application is dealt with without a hearing from the parties and no reasons are provided.
19 A party may then lodge a notice of objection in response to the proper officer’s decision under s6(5) and the matter can then be listed by the court.
20 By s6(7)(a), where the proper officer has refused to make an order, as is the case here, the court may:
(i) order that the judgment debt be paid in instalments and at the times specified in the order; or
(ii) refuse to make the order.
Relevant factors
21 The purpose of the Act is not to benefit judgment debtors in preference to judgment creditors. Prima facie, a judgment creditor is entitled to the fruits of a judgment in its favour. The question is whether departing from the ordinary method of enforcement will enhance the prospects of recovery of the debt in a reasonable time.
22 In Australian Institute of Fitness (Vic & Tas),[1] Barrett AJA expressed the view that “immediate enforcement should not be disturbed without some good reason going to enhancing the prospects of ultimate payment in full.”[2] His Honour made the following observations:
“10.An important point made by Mukhtar AsJ in Davidson v Greedy [2012] VSC 202 is that provisions of this kind exist to enable judgment creditors to obtain the fruits of their judgments. The purpose is not to curtail the rights available at law to obtain satisfaction of a judgment but, rather, to add a method that may be more suited to the particular circumstances than levying of execution and other processes by which the whole sum is sought to be recouped at once.
11.While an instalment order obviously mitigates the severity of the situation in which the judgment debtor is placed, that is not the real issue. The principal concern, as I say, is to discover whether an instalment arrangement will be more conducive to the judgment creditor’s achieving payment in full in a reasonable time. The issue is thus not one of indulgence to the judgment debtor because the judgment debtor somehow deserves an indulgence. The issue is whether indulgence to the judgment debtor will enhance the prospects of full recovery by the judgment creditor.”[3]
[1][2016] NSWSC 1143
[2]Ibid at [13]
[3]Ibid at [10] and [11]
23 The factors a court may take into account when considering an instalment order are not prescribed by the Act. The exercise of the discretion to grant an instalment order will of necessity turn on the particular facts of each case. Nevertheless, various criteria have been identified by the courts in assessing such applications, which include:[4]
[4]A number of which were identified by Barrett AJA in Australian Institute of Fitness [2016] NSWSC 1143 at [8]
(a)whether the judgment debtor is employed;
(b)the means the judgment debtor has to satisfy the judgment;
(c) whether the instalments will see the judgment paid within a reasonable time. Instalment orders that go for too long should not be made. The question of whether the time period is unreasonable or not depends upon the facts in each case. In Hellier Capital Pty Ltd v Richard Albarran,[5] McDougall J held that four years was a reasonable time;
[5][2009] NSWSC 403
(d)the necessary living expenses of the judgment debtor and dependants;
(e)other liabilities of the judgment debtor;
(f) whether, having regard to other enforcement means, an instalment order would be consistent with the public interest in enforcing money orders efficiently and expeditiously;
(g) a proposed instalment order that only chips away at the interest obligation of a debt will be ineffectual and should not be made;[6]
(h)whether the order will impose unreasonable hardship on the creditor - an applicant for an instalment order is required to establish more than just the financial hardship flowing from having his property and assets sold and called in and collected by the Sheriff;[7]
(i)an instalment order should not be made if it is obvious it would be futile because the judgment debtor could not meet his or her obligations under it.
[6]Hellier at [11]
[7]EL & C Baillieu Stockbroking Ltd v Adicho [2010] VCC 1143
Judgment debtors’ submissions
24 It was submitted on behalf of the judgment debtors that:
(a)Both jointly lack financial capacity to pay the judgment debt immediately, but together have demonstrated a capacity to pay both of the judgement debts and interest in full over the period of proposed instalment orders;
(b)The orders sought are not futile because the judgment debtors have income streams which can be used to meet their obligations to pay the instalment orders;
(c)The time proposed is not unreasonable, the reason being that interest will accrue on the judgment debt upon the making of the instalment orders and the judgment debts, including interest, would be repaid within five years. Having regard to the size of the judgment debt which is in excess of $1.4 million, the time period is not excessive and is reasonable in the circumstances. It was also said that the monthly payments will make substantial reductions in the principal amount of the debt.
(d)If the orders are not made, then the most likely effect will be that the plaintiffs will seek to bankrupt the judgment debtors. Earlier bankruptcy notices were recently set aside on the application of the judgment debtors. In respect of Richards, if he were made bankrupt, he would not be able to maintain his employment with FlexiGroup and, in all likelihood, not be able to earn his current level of income. In respect of Shergold, he would be disqualified from holding a licence as an estate agent and be disqualified from being an agent’s representative. Additionally, his bankruptcy may enable the franchisor to terminate the Transworld franchises operated by Melbourne Business Sales Pty Ltd. The inevitable consequence of Shergold being made a bankrupt is that he would be unable to earn his current income.
(e)Richards has no assets of substance from which he can pay the judgment debt. Shergold’s substantive assets are his shareholding, being his shareholding in Melbourne Business Sales Pty Ltd which operates the Transworld franchise. Apart from this, Shergold has no assets of substance from which to pay the debt.
(f)If the orders are not made, the likely result is that the bulk of the judgment debts will not be paid at all.
(g) If the instalment orders are refused, both judgment debtors would face significant hardship beyond that which would normally flow from the realisation of property and assets following bankruptcy. They would almost certainly be disqualified from earning income in their current positions. It was said there is a legitimate public interest in having trained people remain available to perform work in their chosen field, taking into account the legitimate public interest in litigants being able to enjoy the fruits of their success.[8]
(h)Another consequence if the instalment order is refused is, the likely result that the judgment debtors will be unable to continue to support their dependants, including children who are currently in school. There is authority to the effect that there is a significant public interest in the proper support of dependants by those who are the breadwinner. Both Richards and Shergold are the breadwinners of their families[9].
(9)Both Richards and Shergold have school age children. Richards continues to pay spousal maintenance and child support. Shergold is the principal earner in his family. The likelihood is that if they are made bankrupt, this would prevent them from earning a living, which in turn would cause their dependants to suffer.
[8]Hellier at [20]
[9]Ibid at [20]
Judgment creditors’ submissions
25 The plaintiffs oppose the applications made for instalments on the following four grounds:
(a)the figures relating to the debtors’ income and expenses cannot be relied upon;
(b)the debtors have sufficient assets to pay the judgment debts;
(c)the debtors have provided no evidence of any attempt to borrow money to pay the judgment debt and that this would be possible;
(d)the time frame proposed is too long.
Financial position of Shergold
26 The asset position as to Shergold is as follows:
(a)He is self-employed and earns pre-tax income of $970,000 per annum. During the hearing, he confirmed that this figure had increased and that he was reasonably confident of earning in excess of $1 million per year in the foreseeable future. His net annual income after tax would be around $797,000.
(b)He had $4,439.11 in a bank account as at May 2018.
(c) He has $170,000 in an offset bank account. At the hearing he said this had reduced to $40,000 and he had $30,000 in an ANZ bank account.
(d)He has shares valued at $630,216 cost price, being his shares in Fultons. During the hearing, he said that these shares were valued in the order of $500,000 and noted that they were a minority shareholding in a private company and would not be easy to dispose of.
(e)He has $25,000 worth of furniture which he co-owns with his wife.
(f)His wife owns the matrimonial home which was purchased for $2.5 million in 2009. The house is registered in Mr Shergold’s wife’s name. A recent valuation valued it in excess of $4 million. The home is encumbered by a mortgage of $1.8 million.
27 In respect of his expenses, his position is as follows:
(a)He has no personal debt.
(b)He claims to have weekly expenses of $2,300; namely, $119,600 per annum to pay off his wife’s mortgage. In evidence it emerged that he and his wife are parties to the loan secured against the home;
(c)His weekly school fees of $1,300 was for two children (i.e. $67,600 per annum).
(d)He has weekly entertainment expenses of $500 (i.e. $26,000 per annum).
(e)He has weekly expenses of $300 per week for clothing and shoes (i.e. $15,600 per annum).
(f)He has motor vehicle expenses of $600 per week (i.e. $31,200 per annum) for a Porsche motor vehicle.
(g)He spends $600 per week on food.
(h)He has total weekly expenses of just under $15,000 (i.e. $780,000 per annum, or ignoring tax, $7,120.54 per week (i.e. over $370,000 per annum).
28 After paying expenses, this leaves a weekly income of $3,653.54 (i.e. $189,984.08 per annum) left over which can be applied to pay the proposed instalments. This figure was revised upwards in the hearing. The available surplus is now estimated at some $428,000 (being the balance of his net income of $797,000 less non tax expenses of $369,000). Counsel on his behalf noted that Shergold’s income is self-generated and therefore less certain than the employment income generated by Richards.
Financial position of Richards
29 Richards has a $3,000 car, $15,000 in the bank and $15,000 in furniture. Apart from this, he has no other assets.
30 In respect of his income, he claims the following:
(a)His gross income from employment was some $611,000, being $456,000 in salary and $121,000 in paid short term incentives.
(b)Additionally, Richards received $185,000 in consultancy fees in the first quarter of the current financial year.
31 In respect to his expenses, they are as follows:
(a)Annual tax is around $248,000.
(b)He pays water and sewerage of $4,160 per annum.
(c)He pays $44,200 per annum for his three children’s school fees.
(d)In addition, he has childcare expenses incurred for the purposes of earning income of $500 per week.
(e)He has entertainment expenses of $100 per week.
(f)He pays off his credit card with Citibank at the rate of $1,120 per month on a debt owed of $43,450.
(g)He has a NAB Visa credit card of $15,543 and is making monthly repayments of $105 per month.
(h)He has spousal maintenance of $1,000 per week, although he is still together with his wife.
(i)The evidence shows that the Richards’ family home was purchased for $3,200,000 in December 2015. The house is registered in the name of Mr Richards’ wife. He gave evidence that he had contributed to the cost of the renovations which were in excess of $1 million.
32 After deducting expenses, the surplus that Richards has available to pay is around $101,000 from his employment income and $98,500 from his consultancy income. This leaves around $200,000 available to pay the proposed instalments.
Analysis
33 Contrary to the submissions of the judgment creditors, I am not persuaded that the judgment debtors do have any significant assets against which execution could now be made.
34 Whilst Shergold has some assets in the form of shares, these are a minority holding in a private company and not capable of being readily sold. Richards has no assets to speak of. Richards was questioned at length about a property which he had inherited from his late grandmother in March 2017. Following a claim being made upon the estate by his aunt, the matter was settled and a mortgage was taken out to pay out the aunt’s claim in the sum of $325,000. The home was put into a family trust for the benefit of Richards’ children which he said was consistent with his grandmother’s wishes. This property is estimated to be worth between $1.9 million and $2.1 million,[10] subject to the mortgage identified. There is no evidence of any income being received from that property. Richards does not control the trust or receive any income from it. It is not an asset against which the judgment creditors could presently seek to enforce against.
[10]Paragraph 18 of the Di Mauro affidavit sworn 8 August 2018
35 Counsel for the plaintiffs seized on the fact that the residential homes of each of the judgment debtors were owned by their wives, and that if there was a threat of bankruptcy, the wives would then accede to either the homes being sold or borrowings being obtained, with the homes being provided as security. This ignores the fact that these assets are held by individuals who are not the judgment debtors. Both men gave evidence that their wives would not agree to borrow against the homes. This evidence was not challenged and there is no basis for not accepting that evidence as being correct.
36 Counsel for the plaintiff contends his clients would be able to realise the amounts due if the judgment debtors were made bankrupt. But this of course is highly dependent upon what decisions any trustee in bankruptcy might make as to whether the acquisition of any assets, including the matrimonial homes, could be set aside. As the judgment debtors’ counsel pointed out, any recovery action by a trustee in bankruptcy could be protracted and take years to resolve assuming a trustee embarked on such action. For example, in respect of the Portsea property, this property is held by a trust, is mortgaged and those funds were borrowed to pay out a third party, namely, the aunt in litigation over a will. It is highly speculative as to what course a trustee might take if these men were bankrupted and whether any funds could ultimately be recovered. I do not consider the judgment creditors have established a case that they will certainly recover payment if the debtors are made bankrupt. On the facts presently known, it would seem more likely the judgment creditors would recover nothing given the asset position of the judgment debtors.
37 I am not satisfied by the argument put by the judgment creditors that there had been no evidence of any attempt to borrow the money and that it would be possible. Whilst there is no evidence of any attempt to borrow, it has not been demonstrated that the judgment debtors could actually borrow funds. Richards said he was unaware of any means by which he would be able to borrow $1.4m unsecured. Again, it comes back to the issue of the ownership of the major assets, being the family homes, which are owned by the wives of the judgment debtors. There is simply no evidence to suggest that the wives would be willing to borrow against the security of the homes, in fact the evidence given is to the contrary. Nor was there any evidence available to show that funds could be advanced, assuming the wives were agreeable.
38 Whilst counsel for the plaintiffs was critical of the evidence given by the judgment debtors regarding their sources of income and the level of expenses, it was not put, nor were they challenged, that these amounts were false. Although criticism was made of the high level of their expenses, again it was not established that these amounts had been fabricated or exaggerated. It was put that such expenses perhaps could be reduced but, as counsel for the judgment debtors said to the extent that any of the amounts expended could be reduced, this should give the judgment creditors satisfaction in the sense that there would be additional slack to ensure that the instalment payments would be covered. It has not been established, in my view, that the level of income or expenses stated by the judgment debtors should not be accepted. That being so, they have each demonstrated a capacity to pay the instalments proposed having regard to the surplus available identified above.
39 In Davidson v Greedy,[11] the Supreme Court noted that a proposed instalment order should not be made if it goes for so long so as to “not realistically and reasonably result in the recovery of the judgment debt”.[12] In assessing whether a period is reasonable requires consideration of the amount of the judgment debt and the time for which it would be outstanding. In Hellier, McDougall J concluded that a repayment period of a little under four years was not an unconscionable length of time in circumstances where repayments of initially $23,000 increasing thereafter amounted to a very substantial reduction in the principal debt.[13]
[11][2012] VSC 202
[12]Davidson v Greedy at [12]
[13]Hellier at [22]
40 Counsel for the debtors argues that the debt will not remain outstanding for an unconscionable amount of time. The proposed instalment order would see the debt paid by February 2023. Given the size of the debt, the proposed instalments are not trivial in amount and will also attract interest at a higher rate than commercial rates. The interest applicable which is factored into the repayments to be made is at the current rate prevailing under the Penalty Interest Act, which is 10 per cent.
41 Having regard to the sizeable amount to be repaid each month and the quantum of the judgment debt, I do not consider the proposal to repay the amount due by February 2023 is unreasonable in the circumstances. Provided the payments are made, this results in the sum of $360,000 being paid per annum, which is inclusive of interest.
42 If the instalment orders are refused, then the likely consequence will be that both men will be bankrupted. Earlier bankruptcy notices were served by the judgment creditors but were set aside. Whilst self-evidently the purpose of instalment orders is not to benefit the judgment debtors, I accept that bankruptcy will adversely impact on the dependants of the judgment debtors, in particular, the school age children whom they support.
43 Taking into account all of these matters, I am persuaded an instalment order in the terms sought will enhance the prospects of recovery of the judgment debt and should be made.
44 I will hear the parties on the precise form of the instalment orders and on the question of costs.
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