FEDERAL COURT OF AUSTRALIA

Cabvil Pty Ltd as Trustee for the Berwicks (Sunshine Coast) Staff Superannuation Fund v Hoiberg

[1999] FCA 1791

BANKRUPTCY - whether the debtor could resist the making of a sequestration order because of solvency or for any other sufficient reason.

Bankruptcy Act 1966 (Cth) s 52, s 306(1)

Ashdown v Kirk [1999] FCA 1263 Cited

Bendigo Bank Limited v Scerri [1999] FCA 1215 Cited

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

Sandell v Porter (1966) 115 CLR 666 Foll

Bank of Australasia v Hall (1907) 4 CLR (Pt 2) 1514 Cited

Ling v Enrobook Pty Ltd (1997) 74 FCR 19 (FC) Cited

KEVIN PAUL HOIBERG;  CABVIL PTY LTD AS TRUSTEE FOR THE BERWICKS (SUNSHINE COAST) STAFF SUPERANNUATION FUND v KEVIN PAUL HOIBERG

QG 7504 OF 1998

COOPER J

BRISBANE

20 DECEMBER 1999

THE COURT ORDERS THAT:

1.         The estate of Kevin Paul Hoiberg be sequestrated.

2.         The petitioning creditor’s costs of and incidental to the petition be taxed and paid in accordance with s 109(1)(a) of the Bankruptcy Act 1966 (Cth).

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

REASONS FOR JUDGMENT

1                     The petitioning creditor is Cabvil Pty Ltd as Trustee for The Berwicks (Sunshine Coast) Staff Superannuation Fund (“Cabvil”).  The petitioning creditor obtained judgment in the sum of $37,774.54 against the debtor on 31 March 1998.  Cabvil was substituted as petitioning creditor in lieu of Vinrosen Pty Ltd as trustee of the Barr Family Trust (“Vinrosen”), on 30 April 1999.

2                     Vinrosen obtained judgment against the debtor in the Magistrates Court at Maroochydore on 20 May 1998 in an amount of $14,309.85.  On 12 June 1998 a bankruptcy notice based on the said judgment issued.  It claimed $14,309.85 as the judgment sum and $23.52 as interest.  The interest claimed was shown in the attachment to the notice as “Interest upon the sum of $14,309.85 at the rate of 10% on such sum or so much thereof as remains unpaid from the judgment of the Magistrates Court at MAROOCHYDORE dated 20 May 1998”.  The bankruptcy notice, I find, was served on the debtor personally on 19 June 1998.  It required compliance with the notice within twenty-one days after service of the notice on the debtor.

3                     The debtor, I find, failed to comply with the bankruptcy notice.

4                     On 9 December 1998 a bankruptcy petition was filed by Vinrosen.  The alleged act of bankruptcy was the failure to comply with the bankruptcy notice served upon him.  The bankruptcy petition was served on the debtor, I find, on 21 December 1998.  The hearing date was set for 10 February 1999.

5                     After service of the petition the debtor applied on 23 December 1998 to have the judgment against him in the Magistrates Court at Maroochydore set aside.  His application was dismissed on 19 January 1999.

6                     On 4 February 1999 the debtor filed a notice of intention to oppose the petition.

7                     By consent order made by the Registrar, the petition was adjourned on 10 February 1999 to 10 March 1999 with costs fixed at $1,250 being ordered against the debtor.

8                     On 5 March 1999 the present petitioning creditor applied by notice to be substituted for Vinrosen as petitioning creditor.  That notice of motion was made returnable on 10 March 1999.

9                     On 10 March 1999 the petition and the notice of motion were both adjourned to 16 April 1999.  On that date they were further adjourned to 30 April 1999.

10                  On 30 April 1999 the Registrar made the following orders :

“1.       Cabvill [sic] Pty Ltd as trustee for the Berwicks (Sunshine Coast) Staff Superannuation Fund be substituted as the petitioning creditor in Creditor’s Petition number QG7504 of 1998.

2.         Service of a sealed copy of the Order be effected on the debtor.

3.         The petition be amended consequent upon this order being made for substitution as petitioning creditor.

4.         The petition be re-verified and a copy of the petition as amended be served upon the solicitors for the respondent.

5.         The respondent file and serve a notice of intention to oppose the petition and any affidavits intended to be relied upon within ten (10) days after service of the amended petition and affidavits verifying.

6.         The applicant file and serve any affidavits in reply within seven (7) days thereafter.

7.         The petition be adjourned for mention to 9.30 am on Friday 28 May, 1999 with a view to a hearing date being fixed in the week commencing 21 June, 1999.

8.         Costs be reserved.”

11                  The debtor, by his solicitors, filed a notice of his intention to appear and oppose the making of a sequestration order.  The specified grounds of his opposition were :

“1.       The debtor is solvent within the meaning of Section 52(2)(a) of the Act;  and

2.         Other sufficient cause within the meaning of Section 52(2)(a) of the Act.”

12                  In support of his grounds of opposition he also filed an affidavit sworn by him on 26 May 1999.  In his affidavit the debtor dealt with his dealings with Robert Thomas Adcock, an accountant with whom he entered into partnership in early 1998 and who subsequently became bankrupt on 2 December 1998.  That relationship he alleges led to him suffering substantial losses.  The affidavit also deals generally with some assets and expected income flows to be earned from audit and accounting work to be undertaken by him and from the sale of his professional practice and other assets.  The affidavit does not disclose the identity or the amount of his creditors.  Nor does it dispute the debts of Vinrosen or the petitioning creditor.

13                  On 28 May 1999 the petition was listed for mention and the Registrar made the following orders :

“1.       The respondent file and serve any further affidavits intended to be relied upon within the next 14 days.

2.         The applicant file and serve any affidavits in response within 21 days thereafter.

3.         The application be adjourned to 9.30 am on 16 July 1999.

4.         Costs be reserved.”

14                  The listing for 16 July 1999 was vacated and the matter listed on 30 June 1999 when the following orders were made by the Registrar :

“1.       The respondent file and serve all affidavits intended to be relied upon within the next seven (7) days.

2.         The applicant file and serve any affidavits in reply within 21 days thereafter.

3.         The matter be adjourned to Friday 30 July at 9.30 am.

4.         The applicant’s costs of today be taxed and paid by the respondent.”

15                  The debtor failed to deliver affidavit material in accordance with the Registrar’s order and in consequence the mater was re-listed on 23 July 1999.  On that date it was ordered that the petition be referred to a judge of this Court for hearing.

16                  The petition came on for hearing on 30 September 1999.  On this occasion the debtor appeared unrepresented.

17                  The petition was supported by the Deputy Commissioner of Taxation who appeared by Mr Henry, a solicitor from the office of the Australian Government Solicitor.  An officer of the Australian Taxation Office deposes that the debtor is indebted to the Commonwealth in two amounts in consequence of his position as a director of, and dealings with, certain named companies.  Those amounts are $126,116.57 and $135,779.77.  His liability to pay the second of these amounts, it is deposed, is dependent upon the outcome of an appeal in the High Court of Australia from the judgment in Deputy Commissioner of Taxation v Woodhams (1999) 99 ATC 4062.

18                  The petitioning creditor, in support of the petition, filed evidence of a search of the records of Credit Reference Ltd in the name of the debtor.  That search discloses, since 26 July 1995, seventeen default judgments totalling $159,724.  Those judgments include the judgments in favour of Vinrosen and the petitioning creditor.  Of the judgments, three totalling $32,938 are shown as having been paid, the last of the judgments being paid on 11 November 1997.  The search also shows that on 5 June 1998 Zarmack Pty Ltd filed proceedings against the debtor to recover the sum of $100,555.  An affidavit from the liquidator of Zarmack Pty Ltd (in liquidation) deposes to the said sum remaining outstanding and unpaid as at 29 September 1999.

19                  On the hearing of the petition the debtor denied the debts claimed by the Deputy Commissioner of Taxation and by the liquidator of Zarmack Pty Ltd.  He alleged that the claims were overlapping.  The debtor also produced a third party, Cherrie Dangerfield, who he claimed was “prepared to pledge to pay out the capital debt”.

20                  The debtor gave evidence that he had a substantial source of future income from a company, Green Acre Properties Pty Ltd, which had engaged his services as an accountant.  To corroborate this evidence he produced a faxed copy of a letter dated 27 September 1999.  So far as is presently relevant, the letter said :

“Dear Sir

We refer to our recent discussions and meetings held at Benowa on the Gold Coast over the past three weeks.

We confirm as follows :

1.         Our company is currently acquiring 471 acres at Ormeau on the Gold Coast.

2.         The purchase price on the land is $18 million with subsequent development cost being $60 million over the next 5 years.

3.         We have recently finalised the necessary funding package through Warrington International.  The finalisation of the finance package was a long drawn affair and due to the accommodations that we had to make suite the financiers, this proposal extended in excess of eight months longer than we had initially anticipated.  For this we thank you for your forbearance and assistance this time.

4.         We hereby appoint you as accountant and financial adviser to the company and the project for the period of the project estimated to be a minimum of 3 years and a maximum of 10 years depending upon commercial reality.

5.         We hereby offer to you the sum of $50,000 from the first draw down as a deposit on future accounting fees.  You will need to account to us weekly as to the application of such fees and any subsequent claim for fees.

6.         As you would observe from the attached memorandum of understanding the first draw down of fees will occur within 45 working days from 27 September 1999.

7.         This letter is a confirming correspondence only and will require that you prepare and complete an engagement letter and the other letters of confidentiality that would be normally applicable.

Would you please sign the acceptance of this correspondence.

Yours Faithfully ...”

21                  In evidence the debtor gave the following evidence as to the engagement :

“Mr Hoiberg, in the Greenacre Properties letter to you, it says you received the $50,000 from the first draw down for future accounting fees?---Yes.

When do you expect to start work on providing advice and - financial accountancy services and financial advice to Greenacres?---I started eight months ago.

So you have already carried out some of this work?---Yes.  In my original affidavit I referred to a Mr Phister.  This is the Mr Phister.

But to your knowledge Greenacre Properties hasn’t actually entered into a  contract with Warrington International Finance for the advance of moneys?---They’ve entered into a memorandum of understanding.

Yes, that’s all?---Yes.

Mr Hoiberg, do you currently know the state of the contract to acquire the 471 acres?---I do know it’s been executed, yes.  Settlement - settlement occurs in 30 days.

But at this stage there is nothing more than the memorandum of understanding in relation to the finance coming through?---That’s - that’s correct, yes.”

22                  Ms Dangerfield gave evidence that she was a property developer who was, at the time she gave evidence, rearranging her banking requirements.  She stated she was prepared to consider forward paying part of the debtor’s professional fees as her accountant in order that he could discharge the petitioning creditor’s debt and its reasonable costs.  She also wished to see a list of the debtor’s creditors so that she could make an informed decision.  As she was rearranging her banking, she said that it would take up to six weeks to be in a position to pre-pay the money.

23                  The petitioning creditor, in my view, has made out each of the elements required under s 52(1) of the Bankruptcy Act 1966 (Cth) (“the Act”) to obtain the making of a sequestration order.  Although counsel for the petitioning creditor drew to my attention a notation on the Registrar’s certificate that the form of bankruptcy notice did not identify the source under which interest was claimed on the judgment debt of Vinrosen, no ground of objection was taken by the debtor based on the failure.  Indeed, the whole of the debtor’s objection was based on the contention that he was presently solvent and that, having regard to the letter from Green Acre Properties Pty Ltd and the evidence of Ms Dangerfield, sufficient other reason for not making a sequestration order had been made out.  In the absence of such an objection, and in the absence of any argument advanced by the debtor, or his legal advisers on any previous occasion when the matter was before the Court, I do not propose to attempt to reconcile the decision of Dowsett J in Ashdown v Kirk [1999] FCA 1263 with the restrictive dicta of Finkelstein J in Bendigo Bank Limited v Scerri [1999] FCA 1215 at paragraph 21, as to the operation of s 306(1) of the Act.  It is sufficient to say that I am not persuaded that s 306(1) may never operate in respect of a failure to identify the statutory provision entitling interest to be paid on an outstanding judgment debt.  The bankruptcy notice in the present case was not misleading or likely to mislead as to the basis upon which the judgment sum and interest were claimed.  Save as to the identity of the specific statutory provision, the notice was unambiguous and correct. There was no substantial injustice to the debtor caused by the omission of the reference to the statutory provision dealing with interest on outstanding Magistrates Courts judgments and no objection was taken by the debtor to the form of the bankruptcy notice.

24                  I am satisfied that the bankruptcy notice was a valid notice, notwithstanding the irregularity as to the non-disclosure of the statutory provisions entitling interest to be claimed on the judgment debt.

25                  The debtor bears the onus of establishing that he is solvent and able to pay his debts within the meaning of s 52(2)(a) of the Act:  Re Poulson;  Ex parte Hempenstall Bros (No 2) (1929) 1 ABC 54 at 59 - 60.

26                  The test of ability to pay debts is that stated by Barwick CJ (with whom McTiernan and Windeyer JJ) agreed in Sandell v Porter (1966) 115 CLR 666 at 670 :

“... 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. ...”

See also Bank of Australasia v Hall (1907) 4 CLR (Pt 2) 1514 at 1528, 1543.

27                  The evidence led by the debtor does not satisfy this test.  Indeed, the evidence is all the other way.  Accordingly the debtor fails to establish on the balance of probabilities that he is solvent and able to pay his debts.

28                  The debtor also bears the onus to make out the necessary facts to persuade the Court that for other sufficient cause, a sequestration order should not be made:  Ling v Enrobook Pty Ltd (1997) 74 FCR 19 (FC) at 24.  The material obtained from Green Acre Properties Pty Ltd and the evidence of Ms Dangerfield do not persuade me that there is any reasonable probability that either of these sources will provide sufficient funds to discharge even his undisputed creditors within the reasonably foreseeable future.  Further, the proposed realisation of his assets foreshadowed in his affidavit of 26 May 1999, by the time of hearing of the petition, had produced nothing to relieve the debtor from the strictures of his adverse financial circumstances.  Nor has anything occurred since the hearing of the petition which would indicate that the debtor’s financial position has been favourably resolved by his obtaining access to funds or receipt of significant professional income.

29                  There are no circumstances which would satisfy me to exercise a discretion under s 52(2)(b) of the Act not to make a sequestration order.

30                  I am satisfied of each of the elements specified in s 52(1)(a).  I order that the estate of the debtor be sequestrated and that the petitioning creditor’s costs of and incidental to the petition be taxed and paid in accordance with s 109(1)(a) of the Act.

Associate:

Dated:              20 December 1999