FEDERAL COURT OF AUSTRALIA

Free (Trustee) v Crawford, in the matter of Crawford (Bankrupt) (No 2) [2018] FCA 1208

ORDERS

THE COURT ORDERS THAT:

1.    The interlocutory application is dismissed.

2.    The respondent pay the applicant’s costs.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

THAWLEY J:

1    The history of this matter is at least partially provided in Free (Trustee) v Crawford, in the matter of Crawford (Bankrupt) [2018] FCA 337. In summary, on 15 March 2018, this Court made orders by consent under sections 30(1)(b) and 77(1)(e) and (g) of the Bankruptcy Act 1966 (Cth) that Mr Crawford vacate and deliver up to the applicant (the trustee in bankruptcy) possession of the land known as 5 Denham Court Road, Denham Court, in the State of New South Wales (property) on or before 26 April 2018. Various ancillary orders were also made.

2    The respondent (the applicant on the interlocutory application, Mr Crawford) was made bankrupt on 1 April 2010 pursuant to a creditor’s petition filed by the Commissioner of Taxation. On 28 March 2013, the then-trustee in bankruptcy lodged an objection to Mr Crawford’s discharge from bankruptcy on the grounds that, when requested to provide written information, the bankrupt failed to comply.

3    In or about August 2016, Mr Crawford had entered into a Deed of Agreement with the then-trustee in bankruptcy. That Deed contemplated a procedure whereby a valuation of the property would be obtained, and the bankrupt would pay the “Settlement Sum” to the trustee within three months of the date the valuation was supplied to the bankrupt (referred to as the “Stay Period”).

4    Under clause 3.5 of the Deed, the then-trustee agreed not to take steps to sell the property from the date of the Deed until the end of the “Stay Period”. The “Settlement Sum” was the greater of $50,000 on the one hand and, on the other, the valuation of the property less encumbrances. The Deed provided the consequences of failure to pay the “Settlement Sum” within the “Stay Period” in clause 3.10:

3.10    Should the stay period expire without the bankrupt paying the Settlement Sum, the Parties agree that (without limitation to any and all obligations which the Bankrupt has pursuant to the Act):

(a)    The Bankrupt is to vacate the Crawford Property within one month;

(b)    The Bankrupt is to do all things reasonably necessary to assist the Trustee in selling the Crawford Property;

(c)     The Trustee shall sell the Crawford Property; and

(d)    The Trustee shall apply the net proceeds of sale in accordance with the Act.

5    The “Settlement Sum” was not paid.

6    The present trustee replaced the previous trustee on 28 June 2017 pursuant to an order of this Court.

7    The principal proceedings were commenced on 28 November 2017 when the trustee sought declarations and orders to the effect that the property had vested in the trustee and that Mr Crawford deliver up vacant possession.

8    The orders made on 15 March 2018 requiring Mr Crawford to give vacant possession were made in the following circumstances. Mr Crawford’s then-solicitor resided in Queensland and did not have instructions to appear at the hearing on 15 March 2018. Nevertheless, that solicitor was in communication with the solicitor for the trustee who appeared on that occasion. The solicitor for Mr Crawford consented to the orders which were made on 15 March 2018, and subsequently sent an email confirming Mr Crawford’s consent to those orders.

9    As events transpired, Mr Crawford did not vacate the property by 26 April 2018. A “Writ of Possession – Notice to Vacate”, dated 25 June 2018, was issued to the occupier of the property. That document indicated that the writ of possession was issued on 30 May 2018.

10    The evidence relied on by Mr Crawford on this interlocutory application indicated that steps were taken to secure finance after Mr Crawford was discharged from bankruptcy on 20 April 2018.

11    The solicitor for Mr Crawford stated in his affidavit that Mr Crawford was of the mistaken belief that the payment due to the trustee to discharge all outstanding obligations was approximately $390,000. As a result, Mr Crawford initially approached lenders seeking finance approval for that amount. There was no evidence that such finance was obtained.

12    Mr Crawford’s solicitor also indicated in his affidavit that Mr Crawford had instructed that, between April 2018 and June 2018, the legal representatives for the parties engaged in without prejudice correspondence with a view to resolving the matter. It appeared that Mr Crawford first consulted his present solicitors in early July 2018. However, those solicitors were not put in sufficient funds to enable them to accept instructions to file an interlocutory application until 3 August 2018.

13    Mr Crawford relied upon two letters which he said indicated a credible and reliable basis for concluding that there was a realistic prospect of obtaining refinance – as to which, see GE Personal Finance Pty Limited v Smith [2006] NSWSC 889 at [19], per Johnson J. The first of those letters was a letter from Soho Finance Australia. That letter provided as follows:

Based on the information provided in regard to refinance of the existing loan and the payout of up to $900,000 requested, we have several lenders prepared to provide an offer which would only be subject to a valuation by their panel valuer and a confirmation of the amount to be paid out including a current loan statement from the first mortgagee.

I would anticipate an unconditional approval within 7 days and settlement to be no more than 30 days.

14    A number of matters should be noted about this letter. First, Soho Finance is evidently not a principal lender, but some form of agent or broker. Secondly, it is evident that Soho Finance does not know how much the property is worth. Thirdly, Soho Finance does not know how much is sought to be borrowed. I will return to this matter later. Fourthly, it follows that Soho Finance does not know how much a lender would be prepared to lend. In that regard, the letter does not indicate what percentage of the value of the property those lenders would lend at. I note there was no evidence adduced in the proceedings as to what capacity Mr Crawford would have to service any loan.

15    The second letter upon which Mr Crawford relied was an undated letter from Beralon Pty Ltd. That letter was in the following terms:

Following on from our recent discussions I confirm that Beralon Pty Ltd is interested in purchasing a portion of your property situated at 5 Denham Court Road, Denham Court.

I understand that you are looking to raise funds to payout money owed to your creditors and that this has necessitated the sale, or part thereof, of your property.

With the above in mind, Beralon Pty Ltd would want to firstly have a formal valuation undertaken in respect of the property, before any final agreement is reached. Conditional upon agreement in respect of the portion of the property to be purchased and the subject price, Beralon Pty Ltd would likely be able to settle on the sale within 28 days.

Beralon Pty Ltd is agreeable in principle, subject to the terms of any final agreement, to allow you a life tenancy in the property; i.e. it is agreeable to you continuing to reside at the property.

We look forward to discussing with you further with a view to finalising this matter as soon as possible. Please indicate when may be suitable for a formal valuation to take place.

16    The following matters should be noted about that letter. First, Beralon requires a formal valuation. Secondly, it is clear that no final agreement has been reached. Thirdly, no agreement has been reached as to the size of the parcel of the property that Beralon might agree to purchase. And fourthly, there was no evidence before the Court as to what is proposed in terms of subdivision of the property, assuming that were required.

17    The evidence of the applicant, Mr Crawford, as to the amounts owing to the unsecured creditors was that they totalled $902,270, those amounts being set out in the following table:

18    There is also an amount owing to Westpac Banking Corporation of $536,275.68.

19    According to the evidence, there had been discussions with the Australian Taxation Office (ATO) in relation to the debt of $619,259 referred to in the table above. Of that amount, $266,363.97 comprised general interest charges. Mr Webb indicated that he had received instructions from Mr Crawford to prepare and lodge with the ATO an application to seek a remission of the general interest charges. It was said that that application would be lodged within seven days of the date of Mr Webb’s affidavit. In circumstances where it was the ATO which commenced, in a sense, Mr Crawford’s bankruptcy, it may be doubted that that application would be met with success.

20    The trustee relied on two affidavits. The trustee indicated that the position of unsecured creditors was more complicated than indicated in the table set out above. That was not put critically, because the solicitor for Mr Crawford could not have known what the position was with respect to the trustee’s costs. As to the trustee’s costs, it was said from the bar table that they could amount to something in the order of $260,000, comprising the trustee’s costs of roughly $100,000 to $110,000, unpaid costs of the bankruptcy of $79,000, and realisation charges at 7%, also probably amounting to roughly $80,000.

21    It was indicated that the trustee had not called for proofs, and the exact value of amounts owed to unsecured creditors was unknown. It was noted that the evidence indicated an unsecured debt to Mr Michael Crawford of $325,642.09. That debt was acknowledged in Recital E of the Deed made in or about August 2016, referred to earlier.

22    There is potentially also an unsecured debt to Mr Gregory McDonald who had lodged a caveat over the property. Although the evidence provided by the solicitor for Mr Crawford was to the effect that Mr McDonald had agreed to execute a duly registerable withdrawal of caveat to be lodged in the coming days, there was no evidence to suggest that the underlying debt was to be forgiven or had been repaid, or should not be taken into account in determining the debts owed to unsecured creditors. There was no evidence before the Court as to the amount of that debt. The trustee also pointed out that it had not tested the market value of the property. The trustee also submitted that it was relevant to take into account that the property had vested in the trustee and that Mr Crawford was being removed from possession.

23    Mr Crawford seeks a stay of execution of the writ of possession in respect of the property because he wishes to attempt to pursue refinance. The grant of a stay of execution is discretionary.

24    In my view, this is not an appropriate case for the grant of a stay, having regard to the facts outlined above. The history of this dispute is long, beginning in 2010. The applicant, Mr Crawford, was provided with the opportunity in 2016 to enter into an arrangement which in substance would see him remain in possession of the property by paying out the trustee. As a result of Mr Crawford’s failure to comply with the Deed, the trustee was forced into the position of needing to commence the principal proceedings, and to obtain an order requiring Mr Crawford to deliver up vacant possession. It was not until the day of the hearing that those proceedings ended, with Mr Crawford consenting to an order to deliver up vacant possession.

25    I do not regard the two letters in relation to refinance as constituting sufficiently reliable evidence of a realistic prospect of obtaining sufficient finance. Those letters have the difficulties identified above, and there is significant doubt about whether the amount which would be lent would, in any event, discharge all of the debts. I also note that no steps were taken by Mr Crawford until very recently to seek to have the general interest charges reduced. I have taken into account that Mr Crawford has lived in the property for a substantial period of time. I have also taken into account the evidence that he provided accommodation to two friends who may otherwise not be able to secure housing, including with the assistance of Housing NSW.

26    I recognise that not providing a stay will have a significant effect on both Mr Crawford and those two people. Nevertheless, in my view the appropriate order is to refuse the application. I note that this does not prevent, and I have taken into account as a fact that this does not prevent, Mr Crawford continuing discussions with the trustees in order to reach some solution. It is in the interests of both parties that those discussions continue, and indeed they may maximise the realisable value of the property, and they may result in Mr Crawford in some way being able to remain at the property.

27    In those circumstances, the orders I make are:

(1)    The interlocutory application is dismissed.

(2)    The applicant on the interlocutory application, being the respondent in the principal proceedings, pay the costs of the respondent to the interlocutory application, being the applicant in the principal proceedings.

Associate:

Dated:    7 August 2018