Nye v Slater [1999] FCA 89 (5 February 1999)

Last Updated: 16 February 1999

FEDERAL COURT OF AUSTRALIA

Nye v Slater [1999] FCA 89

BANKRUPTCY - creditor's petition - sequestration - ability to pay debts - whether other sufficient cause to dismiss petition

Bankruptcy Act 1966 ss 44, 47, 52

Sandell v Porter [1966] HCA 28; (1966) 115 CLR 666 applied

Re Poulson; Ex parte Hempenstall Bros Ltd (No 2) (1929) 1 ABC 54 cited

Leslie v Howship Holdings Pty Ltd (FCA, Sackville J, unreported, 28 February 1997) cited

Re Bond Corporations Holdings Ltd (1990) 1 ACSR 350 cited

Re Noye; Ex parte Deputy Federal Commissioner of Taxation (1956) ABC 77 cited

Re D'Onofrio; Ex parte Blyth (1986) 65 ALR 545 cited

Re Sarena; Ex parte Wollondilly Shire Council (1980) 32 ALR 596 distinguished

Lipov v Alexander Fraser & Son [1978] FCA 38; (1978) 36 FLR 126 distinguished

McLeod v Falvey (FCA, Cooper J, unreported, 20 September 1995) cited

ANTHONY GRAHAM NYE v WILLIAM KEITH SLATER

VG 7886 of 1998

RYAN JR

MELBOURNE

5 FEBRUARY 1999

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	VG 7886 OF 1998

BETWEEN:	ANTHONY GRAHAM NYE APPLICANT
AND:	WILLIAM KEITH SLATER RESPONDENT
JUDICIAL REGISTRAR:	RYAN
DATE OF ORDER:	5 FEBRUARY 1999
WHERE MADE:	MELBOURNE

THE COURT ORDERS THAT:

1. The estate of the debtor be sequestrated.

2. The petitioning creditor's costs of and incidental to the application (including reserved costs) be taxed and paid in accordance with the Act.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	VG 7886 OF 1998

BETWEEN:	ANTHONY GRAHAM NYE APPLICANT
AND:	WILLIAM KEITH SLATER RESPONDENT

JUDICIAL REGISTRAR:	RYAN
DATE:	5 FEBRUARY 1999
PLACE:	MELBOURNE

REASONS FOR JUDGMENT

Creditor's Petition

1 On 17 November 1998 the applicant creditor applied to the Court for a sequestration order against the estate of the respondent debtor. Bankruptcy Notice VN 952 of 1998 had been served on the debtor on 24 June 1998 and was founded on an order of Ostrowski J made in the County Court of Victoria on 6 May 1998. This was an order that the debtor pay the creditor so much of the amount of $58,790.82 as the creditor does not recover from the debtor's company, Cytix Pty Ltd. No sum has been recovered from Cytix.

2 There is a history of litigation linked to the County Court judgment. This includes a Supreme Court action by the debtor as plaintiff against the creditor as defendant. The action was struck out and an appeal against the striking out was dismissed. The debtor obtained leave to appeal out of time against the County Court judgment founding the bankruptcy notice but failed to obtain a stay on the judgment. Later, the debtor obtained an order which could have led to a stay on the judgment but this potential stay was conditional on the debtor making a payment into Court. Despite an extension of time the debtor advised that he could not make the payment into Court and there is no stay on the judgment founding the bankruptcy notice.

3 The debtor applied on 2 July 1998 to set aside the bankruptcy notice. That application was returned in this Court on 4 August, adjourned to 14 September, adjourned again because of the Supreme Court appeal and further adjourned with costs against the debtor to allow the debtor to make the payment into Court which, if made, would have effected a stay on the County Court judgment.

4 On 26 October 1998, ten days after the debtor advised that he could not make the payment into Court, I heard and on 27 October refused an application to extend time to comply with the bankruptcy notice. The application to set aside the bankruptcy notice was also listed but withdrawn on the first day of the hearing on 26 October. The judgment of 26 October (unreported) contains much of the background. I will not repeat it. The reasons for judgment are exhibited as exhibit MD1 to the affidavit of 17 November 1998 verifying paragraph 4 of the creditor's petition. The reasons for judgment today should be read in conjunction with the reasons for judgment of 27 October 1998.

5 Mr Christie appears for the creditor as he did in the earlier proceedings. Mr Finkelstein appears for the debtor as he did in the earlier proceedings.

Notice of Opposition

6 The debtor relies on a notice of opposition and three grounds set out therein. The debtor asserts that the petition should be dismissed because the Court should be satisfied that:

1. the debtor is able to pay his debts

2. the pending appeal to the Court of Appeal against the judgment debt is "other sufficient cause a Sequestration Order should not be made"

3. "other sufficient cause a Sequestration Order should not be made" is constituted by reason that no adequate opportunity has been given to the debtor to sell assets sufficient to meet the judgment debt.

7 In respect of the second and third grounds, while dismissal of the petition is sought, adjournment of the petition, pending the outcome of the appeal, is sought in the alternative in (2.) and adjournment of the petition pending purported sale of assets as an alternative in (3.).

First Ground - Ability to Pay

8 I am not satisfied that the debtor is able, "using such cash resources as he has or can command through the use of his assets, to meet his debts as they fall due". This is the test or indication of insolvency expressed by Barwick CJ in Sandell v Porter [1966] HCA 28; (1966) 115 CLR 666 at 670.

9 The onus of proving assets sufficient to pay debts lies in the debtor: Re Poulson; Ex parte Hempenstall Bros Ltd (No 2) (1929) 1 ABC 54.

10 In the case of a company unable to meet current demands upon it. "It is useless to say if its assets are realised there will be ample to pay 20 shillings in the pound. This is not the test. The company may be at the same time insolvent and wealthy. It may have wealth locked in investments not presently realisable, but although this be so, yet if have not assets available to meet its current liabilities it is commercially insolvent and may be wound up." See Leslie v Howship Holdings Pty Ltd (FCA, Sackville J, unreported, 28 February 1997) quoting Re Bond Corporations Holdings Ltd (1990) 1 ACSR 350 at 358.

11 In Re Noye; Ex parte Deputy Federal Commissioner of Taxation (1956) ABC 77 at 78, Clyne J said:

"In my opinion if it appears upon the hearing of a petition that the debtor is not then able to pay his debts to the petitioning creditor and to his other creditors the Court cannot be satisfied that the debtor is able to pay his debts though he has assets which exceed in value the amount of his debts and, if given time to realise his assets, will be in a position to pay his debts. A distinction must be drawn between a debtor who is able to pay his debts and a debtor who will be able to pay his debts at some future date."

12 The respondent debtor alleges that he and his wife jointly own assets approximately $1.8M in excess of his liabilities. He has produced as exhibit WKS 3 to his affidavit sworn 18 December 1998 a written consent from his wife, Janet Glen Slater, in which she purports to consent as follows:

"To the extent necessary as joint proprietor with you (in respect of the ownership of various parcels of real property held in our joint names) I hereby consent to the sale of such of those properties (except our matrimonial home at 50 Salislbury Road, Upper Beaconsfield) but in particular the sale of the factory property known as 5 Geddes Street, Mulgrave, as may be necessary to supply sufficient proceeds to meet the debt, the subject of such bankruptcy proceedings."

13 First there is nothing to suggest the debtor's wife is bound: See Re D'Onofrio; Ex parte Blyth (1986) 65 ALR 545.

14 Second, and of more significance, no evidence has been produced to support the assets itemised in exhibit WSK 2 to the respondent's affidavit sworn 18 December 1998. Mr Finkelstein concedes this but claims that the assertion of these joint assets is uncontradicted. In a strict sense he may be correct in that the creditor has not produced any evidence to negate the actual existence of joint assets but there no such onus on the creditor. The creditor has certainly challenged the possible access of the debtor to such joint assets as may exist. In any event, as earlier indicated, the onus to prove assets sufficient to pay debts lies on the debtor. The debtor has failed to satisfy the court in terms of s 52(2)(a) of the Bankruptcy Act 1966 that he is able to pay his debts.

15 In this respect I note also various references in affidavit material which tend to show the respondent debtor has been unable to pay his debts as and when they fell due. Many of these references are identified and addressed in the affidavit of Ronald Gerard Willemsen sworn 7 December 1998. The debtor's evidence in paragraph 3 of his affidavit of 19 August 1998 about the sale of the Belgrave property being the result of insistence of the ANZ Bank and the sale of the Upper Beaconsfield property being the result of the insistence of the Bank of Melbourne are but examples.

16 The first ground of opposition is not made out.

17 I will only add that given my conclusion the debtor gains no assistance from Re Sarena; Ex parte Wollondilly Shire Council (1980) 32 ALR 596. Mr Finkelstein submitted that the debtor was unable to pay his debts, had been unwilling to do so, but was now willing to realise assets to pay those debts. Re Sarena is authority that there is no policy underlying the Bankruptcy Act that a debtor should be made a bankrupt if he is able to pay his debts but is unwilling to do so. It is authority that creditors of a recalcitrant debtor may resort to remedies otherwise afforded by the law such as execution against property and garnishee proceedings. It has no place in a case where the debtor has failed to satisfy the Court in terms of s 52(2)(a) and, even if the debtor had discharged that onus, Re Sarena is also authority that the power conferred upon the Court by s 52(2) is permissive not mandatory.

Second Ground - Pending Appeal Against Judgment Debt

18 The debtor has not satisfied me that the pending appeal against the judgment debt is "other sufficient cause a sequestration order ought not to be made". I rely on, but do not repeat the circumstances described in the conclusion reached in the Reasons for Judgment of 27 October 1998 when an extension of time to comply with the bankruptcy notice was refused.

19 Mr Finkelstein cited Lipov v Alexander Fraser & Son [1978] FCA 38; (1978) 36 FLR 126 at 130. In the circumstances of that case Sweeney J extended time for compliance with the bankruptcy notice and held that the institution of a bona fide appeal against the judgment upon which a bankruptcy notice is based is a good reason for adjourning the hearing of a petition. The circumstances of that case are not the circumstances of this case. An appeal against a judgment may be such in the circumstances of some cases as to readily permit a debtor to satisfy the Court sufficient cause exists to decline to make a sequestration order be it by dismissal or adjournment. The circumstances do not lead to such a conclusion in this application.

20 On 27 October I stated that the question whether a sequestration order should be made upon the bankruptcy notice with an appeal against the judgment outstanding was not a matter with which I was then concerned. It is a question with which I am now concerned. At that time I did express the view that this was not a case like McLeod v Falvey (FCA, Cooper J, unreported, 20 September 1995). I did not then consider this a case in which the creditor should refrain from presenting a petition or seeking an order for sequestration and I do not consider the pending appeal sufficient cause now to refrain from making a sequestration order.

Third Ground - Opportunity to Meet the Judgment Debt

21 Assuming for the purposes of this ground that the debtor can gain access to adequate assets to meet the debt, I am not persuaded that the provision of additional time to convert such assets could constitute sufficient cause to dismiss or adjourn a petition for a sequestration order, and if it could, in this case I would not be satisfied of sufficient cause. If the debtor has access to such assets, and of that I am uncertain, ample time for access has elapsed.

Conclusion

22 The debtor has failed to satisfy the Court that a sequestration order should not be made.

23 I am satisfied that the debtor committed the act of bankruptcy alleged in the petition.

Orders

1. That the estate of the debtor be sequestrated.

2. That the petitioning creditor's costs of and incidental to the application (including reserved costs) be taxed and paid in accordance with the Act.

I certify that the preceding twenty-three (23) numbered paragraphs are a true copy of the Reasons for Judgment herein of Judicial Registrar Ryan

Associate:

Dated: 12 February 1999

Counsel for the Applicant:	Mr D Christie
Solicitor for the Applicant:	MacPherson & Kelley
Counsel for the Respondent:	Mr P Finkelstein
Solicitor for the Respondent:	FLA Partners
Date of Hearing:	5 February 1999
Date of Judgment:	5 February 1999 (Ex tempore as revised from transcript)