Atia & Nusbaum [2011] FMCA 639 (4 August 2011)

Last Updated: 19 August 2011

FEDERAL MAGISTRATES COURT OF AUSTRALIA

ATIA v NUSBAUM

[2011] FMCA 639

BANKRUPTCY – Application to set aside bankruptcy notice – abuse of process – abuse of process not made out.

Hubner v ANZ Banking Group Limited [1998] FCA 1779 Re Hutchings (A Applicant); Ex parte Wall (unrep., Federal Court of Australia, Spender J, 6 May, 1998) Lord v Rankine (2010) FMCA 668

Applicant:

AARON ATIA

Respondent:

VIOLET NUSBAUM

File Number:

BRG 654 of 2011

Judgment of:

Jarrett FM

Hearing date:

4 August 2011

Date of Last Submission:

4 August 2011

Delivered at:

Brisbane

Delivered on:

4 August 2011

REPRESENTATION

Counsel for the Applicant:

Mr S. Grant

Solicitors for the Applicant:

Adamson Bernays Kyle & Jones

Counsel for the Respondent:

Mr P.P. McQuade with Mr C. Crawford

Solicitors for the Respondent:

Merthyr Law

ORDERS

(1) All outstanding applications be dismissed.
(2) The applicant pay the respondents costs of and incidental to these proceedings to be assessed according the Federal Magistrates Court Bankruptcy Rules.

FEDERAL MAGISTRATES COURT OF AUSTRALIA AT BRISBANE

BRG 654 of 2011

AARON ATIA

Applicant

And

VIOLET NUSBAUM

Respondent

REASONS FOR JUDGMENT

1. The applicant in this case owns property at Kilkenny Court, on the Gold Coast. There has been a long history of litigation between the parties arising out of loans made by the respondent, his mother, to the applicant and secured by mortgage over the Kilkenny Court property.
2. The useful chronology handed up in the course of argument, in respect of which no issue was taken, demonstrates that in June 2009, the respondent issued a notice of exercise of power of sale pursuant to her mortgage over the Kilkenny Court property. That prompted Supreme Court proceedings by the applicant wherein he sought relief against that action. There was a counterclaim by the respondent in respect of the loan she alleged was made by her to him.
3. By and by, the proceedings were tried and judgment was given for the respondent against the applicant. The evidence establishes that the present amount of debt, including post-judgment interest, is a little more than $1.2 million.
4. On 7 July this year, the respondent served a bankruptcy notice on the applicant. That bankruptcy notice relies upon the judgment to which I have just referred. By this application, the applicant seeks to set aside the bankruptcy notice. He also seeks that time for compliance with the bankruptcy notice be extended to enable this application to be heard. It seems that relief is not necessary.
5. Alternatively, he seeks an extension of time within which to comply with the bankruptcy notice until seven days after final determination of a certain appeal in the Supreme Court proceedings that led to the judgment. In the further alternative, he seeks an extension of time to comply with the bankruptcy notice until seven days after the determination of an application for a stay of the Supreme Court judgment, to which I have earlier referred.
6. As to the further alternative relief, the stay application has been dealt with and refused. The further alternative relief, therefore, does not seem to be appropriate.
7. The appeal to which I have just referred is an appeal against the orders of Boddice J made earlier this year. It is the judgment giving rise to the bankruptcy notice. That appeal has been stayed pending the applicant providing security for the respondent’s costs of the appeal. He has until a date in September to provide the security. But until that time, the appeal is stayed and, as I say, a stay of execution on the judgment, as I understand it, has been refused.
8. The grounds upon which the applicant seeks to have the bankruptcy notice set aside were condensed into an argument that the issue of the bankruptcy notice is an abuse of process. There is no issue between the parties that if I come to the conclusion that the bankruptcy notice or the issue of it is an abuse of process, I can order that it should be set aside.
9. What amounts to an abuse of process, however, requires some consideration. The authorities, conveniently collected in McDonald, Henry & Meek at page 8-1309, make it clear that – and this is my paraphrasing, that what needs to be demonstrated is that there is some undue pressure being brought to bear on the debtor so that the creditor will receive something more than what the creditor is otherwise entitled to receive at law through the pressure exerted by the bankruptcy proceedings. Here, on the material, I cannot come to that conclusion. I cannot come to the conclusion that the respondent in this case is seeking to obtain anything other than that to which she is entitled at law by the use of this bankruptcy notice. She is entitled to enforce her judgment and one way in which that might be done is through the use of bankruptcy proceedings: Hubner v ANZ Banking Group Limited [1998] FCA 1779 per Dowsett J where his Honour pointed out:
   • The process prescribed by sub-section 40(1)(g) provides a formal system for demanding a judgment debt, with a clear outline of the consequences of non-compliance. Non-compliance will, itself, constitute a basis for bankruptcy, presumably because it provides evidence of insolvency. The tacit process of reasoning may be as follows:-
   • (a) The creditor has the benefit of a money judgment against the debtor.
   • (b) The debtor has been advised that unless he pays by a fixed date he may be bankrupted.
   • (c) He has not paid by the fixed date.
   • (d) The reasonable inference is that he cannot pay, ie he is insolvent.
   • (e) Therefore he should be bankrupted.
   • The statutory scheme is designed to facilitate both the recovery of debts and the administration of insolvent estates. Where an act of bankruptcy has been committed, any creditor qualified to present a petition may rely upon it. See Re Barker; Ex parte Mitchell (1958) 18 ABC 195. Thus the significance of a failure to comply with a bankruptcy notice goes beyond the relationship between the judgment creditor and the judgment debtor.
10. The applicant also argues that he is solvent and to pursue the bankruptcy notice against him in those circumstances is of itself an abuse. But there is no evidence that he is solvent. The onus is on him to prove solvency and he just does not. It is not to the point to suggest that he has a property which might be sold, which might realise a certain amount of money and which, if it did, might expunge the debt.
11. There is no proper evidence before me about the value of the Killarney Court property save for that referred to in the respondent’s solicitor’s affidavit. That demonstrates that the value of the property might be as low as $700,000 or thereabouts. There is certainly no probative evidence before me that it is worth anything more than that.
12. The applicant was cross-examined in these proceedings. He was the least impressive witness I have seen in a long time. He knew nothing about his financial affairs – nothing of any substance – in circumstances where one would have expected him to know a great deal about those things. He was evasive about the source of income that he has earned and I found his explanation – or more to the point the lack of it – about the share transactions that took place in October last year as illuminating. There were two reasons given for the share transactions, one of which seemed to be a desire on the part of his wife, who has not given evidence in these proceedings, to ensure that assets were – this is my interpretation, of course – protected from creditors. Although the applicant did not use those words in the witness box, he came very close to doing so.
13. I am not satisfied that solvency has been established or anything close to solvency has been established by the applicant.
14. It was also said, as indicative of the notice being an abuse of process, that the respondent has initiated the exercise of the power of sale granted to her in the mortgage between the applicant and the respondent and that she should follow through on that first before she causes to issue of a bankruptcy notice. But, as Mr McQuade has amply demonstrated, the authorities are against that proposition. It is not the case that a creditor needs to exhaust all or any other remedies before pursuing a bankruptcy notice. The authority referred to by Mr McQuade – Re Hutchings (A Applicant); Ex parte Wall (unrep., Federal Court of Australia, Spender J, 6 May, 1998) – whilst not binding on me is highly persuasive. So too are the remarks contained in McDonald, Henry & Meek at 8-1308 under the paragraph 52.2.30, to this effect:
    • The fact that the petitioning creditor is pursuing two different remedies for securing payment of a debt is not a sufficient cause for dismissing a petition, provided he or she still has a debt of the amount prescribed by section 44 due to him or her.
15. Those annotations, of course, are dealing with a creditor’s petition and the court’s discretion to refuse to make a sequestration order if the debtor shows “other sufficient cause,” but it underscores the point made by Spender J.
16. Considerable reliance was placed on the decision of Raphael FM in Lord v Rankine (2010) FMCA 668. At paragraph 29 of that decision, his Honour, at the beginning of the paragraph, says this:
    • The proper purpose of seeking a sequestration order against the estate of a debtor is so that a debtor who is unable to pay his debts as and when they fall due should have his affairs controlled for the benefit of all of his creditors and not just specific ones. Allied to this purpose is the prevention of the debtor incurring further obligations which he will not be able to meet. It is a public purpose. The bankruptcy process is not to be used for private ends.
17. It seems that his Honour was not referred to Dowsett J’s decision. In any event, in paragraph 29, further on, his Honour says this:
    • It seems to me that this course of dealings and the failure of the respondents to take any other steps to execute upon their judgment is indicative of an intention to utilise the bankruptcy process for reasons other than securing the orderly distribution of the debtor’s estates. Issuing a bankruptcy notice is the first step in the process. It enables the sequestrating court to assume insolvency and thus the need for imposition of the trustee to handle the debtor’s affairs. In a case where it is clear that the officers of the court upon whom this personal liability has been impressed have a right of indemnity over the assets of the company and have also been indemnified by Ms Lowe, the creditor whose actions caused them to be appointed and who are partners in an established insolvency practice, it is difficult to infer that the issuance of the notice was undertaken for a bona fide reason.
18. The first sentence of the last quote was relied upon by the applicant here. But the first sentence in isolation does not convey his Honour’s entire meaning. It needs to be read in the context of the balance of the paragraph. There are important facts referred to in the balance of the paragraph that divorce Lord v Rankine from this case. In Lord v Rankine the debtors were liquidators of a company. They were entitled to indemnity from the assets of the company. They were also the recipients of an indemnity from the creditor that petitioned for the appointment of the liquidators and so in those circumstances, his Honour formed the view that there might well be an abuse of process.
19. This case is very different. There is no right of indemnity to which the applicant points as being a source from which he might pay this judgment. It is not suggested that he has any other way in which he might elude liability for the judgment, other than the appeal which is presently stayed. Lord v Rankine was decided on its own facts and its facts are different to this case.
20. In all of the circumstances, I am not satisfied that the bankruptcy notice is an abuse of process. The application to set it aside will be refused.
21. I also see no basis upon which I would extend the time for compliance with the bankruptcy notice. Even if the property in respect of which the respondent holds security is sold at some immediate time in the future, it is, on the evidence, likely that there will be some form of shortfall, which will nonetheless be sufficient grounding for a bankruptcy notice. In those circumstances, it seems to me that any extension of time will be futile. That is especially so given the applicant’s own evidence which was so imprecise about his income, about his financial position generally and about his ability to raise funds to meet this debt.
22. In those circumstances, all of the outstanding applications will be dismissed.

I certify that the preceding twenty-two (22) paragraphs are a true copy of the reasons for judgment of Jarrett FM

Date: 19 August 2011