Deputy Commissioner of Taxation v Colling

[2002] FMCA 224

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(Judgment by: Connolly FM)

Deputy Commissioner of Taxation of the Commonwealth of Australia
v Graham Albert Colling

Court:

Judge:
Connolly FM

Subject References:
Bankruptcy
Section 33(1) adjourned application
alternatively defended petition pursuant to section 52(2)

Legislative References:
Bankruptcy Act 1966 - Section 5; Section 33; Section 33(1); Section 52(2); Section 52(2)(a); Section 95; Section 120; Section 121; Section 122

Case References:
Sandell v Porter - (1966) 155 CLR 666
ANZ Banking Group Pty Ltd v Foyster - [2000] FCA 400
Re Sarina; Ex Parte Wollondilly Shire Council - (1980) 32 ALR 596
Trojan v Corporation of Hindmarsh - (1987) 16 FCR 37
Bank of Australasia v Hall - (1907) 4 CLR 1514

Hearing date: 30 September 2002
Judgment date: 30 October 2002

Melbourne

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Judgment by:
Connolly FM

REASONS FOR JUDGMENT

The proceedings

1. This is an ex-tempore judgment arising from the Applicant's application for a sequestration order. The Respondent has however sought alternatively that the application be adjourned pursuant to the provisions of section 33(1) of the Bankruptcy Act 1966 or dismissed pursuant to section 52(2) of the Act.

2. The documents relied on:

a)

the applicant relied on the affidavits filed in support of that application. The formal matters required pursuant section 52 of the Bankruptcy Act 1966 are not in dispute and indeed are conceded by the Respondent apart from the issue of solvency.

b)

the Respondent in support of his application relied on:

i)

the affidavit of the Respondent G Colling filed 17 June 2002;

ii)

the affidavit of G Colling filed 25 June 2002;

iii)

the affidavit of G Colling filed 23 September 2002;

iv)

the affidavit of G Colling filed 30 September 2002;

v)

the affidavit of Dean Jones filed 3 September 2002.

In addition the Respondent gave some viva voce evidence on 30 September 2002.

The history of the matter

3. The judgement debt of $155,140.35 was incurred on 14 August 2001 and the first hearing of the petition was on 14 May 2002. Since then there has been a series of adjournments sought and consented to. The hearing on 30 September 2002 was the first contested application for an adjournment.

4. The Respondent's primary application is for an adjournment and it was put by Mr Fary for the Respondent at the outset, that if he fails in that application, he would defend the petition on the basis of solvency. Section 33 of the Bankruptcy Act 1966 states as follows:

"(1) The Court may:

(a)

upon such terms as it thinks fit, at any time adjourn any proceeding before it, either to a fixed date or generally;

(b)

..."

5. The discretionary reasons advanced by the Respondent for the adjournment were that there will be a substantial sum of money coming to the Respondent in the short term. The material put before me, particularly that contained in the Respondent's latest affidavits, shows a substantial surplus of assets over liabilities (i.e. some $665,500) and even if I take into account the claims made by Mead Partners (which is denied) and the debt to the Australian Taxation Office, there would still be something in the order $300,000 surplus. In addition, the Respondent's affidavits of 23 September 2002 and 30 September 2002 and his viva voce evidence given this day indicate that there is a strong possibility that he will be in receipt of a $500,000 success fee. The transaction as I understand it, depends on approval of a $9.362 million loan from the National Australia Bank to the Lilydale International Group. The evidence indicates that written approval has been granted for $8.5 million and verbal approval has been given for $9.362 million. The Respondent's further evidence was that the written confirmation of this was expected by Wednesday 2 October 2002. Once that arrives there will be sufficient funds to discharge the debt to the Australian Taxation Office.

6. Apart from the success fee, there is also the sale of the block of land which is referred to in paragraph 4 of the Respondent's affidavit of 30 September 2002 as well as in his oral evidence. Settlement of that sale will take place on 7 October 2002. The likelihood is that the sale will realise an amount of slightly less than $100,000 and steps have been put in place to borrow the necessary balance (prior to the adjourned date) if that is needed.

The law

7. Mr Fary for the Respondent referred me to the decision of Sandell v Porter 1996 CLR 666 and in particular to the passage of Barwick CJ at page 670 as follows:

"An essential step in making out that a payment is a preference within s.95 is to establish by evidence to the satisfaction of the Court that the payer was at the time of the payment insolvent. Insolvency is expressed in s. 95 as an inability to pay debts as they fall due out of the debtor's own money. But the debtor's own moneys are not limited to his cash resources immediately available. They extend to moneys which he can procure by realization by sale or by mortgage or pledge of his assets within a relatively short time - relative to the nature and amount of the debts and to the circumstances, including the nature of the business, of the debtor. The conclusion of insolvency 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, utilizing such cash resources as he has or can command through the use of his assets, to meet his debts as they fall due which indicates insolvency. Whether that state of his affairs has arrived is a question for the Court and not one as to which expert evidence may be given in terms though no doubt experts may speak as to the likelihood of any of the debtor's assets or capacities yielding ready cash in sufficient time to meet the debts as they fall due."

8. Mr Ellis for the Applicant referred me to the ANZ Banking Group Pty Ltd v Foyster [2000] FCA 400 31 March 2000 and paragraphs 17, 18 and 19 of the the judgement of Hely J:

"17 The onus of proving sufficiency of assets lies on the respondent. It is not sufficient for the respondent simply to establish that he has assets which exceed his liabilities in value. It must also be established that the assets are available to be realised and that they are capable of ready realisation. If a debtor is able to pay his or her debts, but is recalcitrant, the creditors may resort to other remedies, such as execution against property and garnishee proceedings, but not to sequestration. Bankruptcy is not a proceeding designed for the recovery of debts: see Re Sarina; Ex Parte Wollondilly Shire Council (1980) 32 ALR 596, 599.

18 Although a sequestration order will not be made against the estate of a debtor who is recalcitrant but plainly solvent, the Bank submitted, on the basis of Trojan v Corporation of Hindmarsh (1987) 16 FCR 37, 46-48, that the discretion under s 52(2)(a) should not be exercised unless the debtor demonstrates that the petitioning creditor will be satisfied from the ordinary remedies such as execution and guarantee. Trojan decides that even if a debtor establishes solvency, the Court retains a discretion whether or not to dismiss the petition. The Full Court said, at p 48:

"... the principle laid down in the Sarina case would not necessarily be satisfied by a sterile demonstration of an ability to achieve a payment which was not in reality at all likely to be compelled. Section 52(2)(a) envisages a situation which will probably bear fruit in payment. It is not easy to see any other reason why the legislature saw fit to make a demonstration of ability to pay only a discretionary ground of dismissal of a petition, and not an absolute bar to its success."

19 Under s 52(2)(a) the respondent must satisfy the Court that he is "able to pay his ... debts", including liabilities: s 5(1). In my view, the subsection refers to a state of affairs which requires account to be taken of debts which will fall due in the reasonably immediate future pursuant to existing obligations: Bank of Australasia v Hall (1907) 4 CLR 1514, 1527-1528 as well as debts which are presently due and payable. However, whether that is so or not, for the reasons explained by Katz J in International Alpaca Management Pty Ltd account needs to be taken, if not in assessing solvency, then in the exercise of the discretion whether or not to dismiss the petition, of liabilities which will become payable in the reasonably immediate future."

Conclusions and findings

9. I am satisfied that on the material before me this day, that there is a strong likelihood that the Respondent will be able to meet his debt by the proposed adjourned date, if not from the receipt of the success fee, then from the proceeds of the sale and the mortgage. I accept the submission made by Mr Fary that the Respondent wasn't cross examined about those dealings in any way that suggested the moneys won't be forthcoming.

10. Mr Ellis has made submissions to me, that refer to the history of some eight adjournments and says enough is enough. However, I am satisfied on the basis of the material before me that on all the previous occasions there has been an expectation that payment would come from one source or another and indeed, the Applicant on all of those occasions has been accepting of that. And in any event, I am required to look at the situation as it is at the moment.

11. Mr Ellis has elicited in cross examination evidence of a number of property transfers during the past two years. But again, as pointed out by Counsel for the Respondent, that would be of far greater significance, if there were a shortfall of liabilities with respect to assets, in particular, having regard to the clawback provisions of section 120, 121 and 122 of the Bankruptcy Act 1966.

12. In all the circumstances I am satisfied that no disadvantage can be caused to the Applicant if I grant the adjournment and that the granting of the adjournment is likely enable the Respondent to meet his debt.

13. I order accordingly:

(3)

THAT the further hearing of the petition be adjourned to 14 October 2002 at 9:45am.

(4)

THAT the applicant's costs of this day be reserved.