FEDERAL COURT OF AUSTRALIA

Offermans v Hodge [2018] FCA 1818

ORDERS

THE COURT ORDERS THAT:

1.    The application to review the decision of the Registrar pursuant to s 35A of the Federal Court Act 1976 (Cth) be dismissed with costs.

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

ORDERS

THE COURT ORDERS THAT:

1.    The application to review the decision of the Registrar pursuant to s 35A of the Federal Court Act 1976 (Cth) be dismissed with costs.

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

REASONS FOR JUDGMENT

COLLIER J:

Introduction

1    Before the Court are two applications to review decisions of a Registrar, pursuant to s 35A of the Federal Court of Australia Act 1976 (Cth) (the FCA Act). On 7 February 2018 and 13 December 2017, the Registrar made sequestration orders against the bankrupt estates of married couple Mrs Lynette Hodge and Mr David Hodge in QUD587/2017 and QUD600/2017 respectively. In brief, the bankrupts sought to adjourn the hearing of the creditors’ petitions before the Registrar so that they could defend proceedings in the Supreme Court of Queensland and seek relevant costs if successful in that defence. However, the adjournments were refused by the Registrar in both matters and sequestration orders were made against the bankrupts’ estates.

background

2    For at least 30 years, the bankrupts have, through various entities, operated a business called Mackay Spare Parts situated at premises at 21 Sydney Street, Mackay. At material times the bankrupts owned those premises. In April 2004, the entity through which the business was conducted was Mackay Spare Parts (Trading) Pty Ltd. Mrs Hodge was a director and member of the company and Mr Hodge was company secretary, a member and (until 19 March 2004) a director.

3    On 2 April 2004 Mackay Spare Parts (Trading) Pty Ltd was wound up in insolvency by order of the Supreme Court of Queensland sitting in Townsville. The plaintiff in that proceeding was the Deputy Commissioner of Taxation. Knights Insolvency were appointed as receivers. Subsequently on 9 May 2005 Mr Dennis Offermans, the first applicant creditor in the matters presently before me, was appointed liquidator of Mackay Spare Parts (Trading) Pty Ltd.

4    Prior to the winding up of Mackay Spare Parts (Trading) Pty Ltd, on 1 November 2003, the bankrupts transferred the business of Mackay Spare Parts from Mackay Spare Parts (Trading) Pty Ltd to Mackay Spare Parts Pty Ltd.

5    Mackay Spare Parts Ltd was also subsequently wound up in insolvency. MSP Engines (Qld) Pty Ltd was incorporated and Ms Nicola Griffin of DNV Accountants was appointed a director. In December 2013, the business was transferred to MSP Engines. Mr Hodge later became a director of MSP Engines in 2014.

Proceedings in the Supreme Court of Queensland

6    In 2005, Mr Offermans and Mackay Spare Parts (Trading) Pty Ltd commenced proceeding BS159 of 2005 in the Supreme Court of Queensland. It appears from an extract of a statement of claim at Annexure LMH2 to the affidavit of Mrs Hodge sworn 11 July 2018 that proceeding BS159 of 2005 involved, inter alia, allegations that the sale of the business on 1 November 2003 was an “uncommercial transaction” within the meaning of s 588FB of the Corporations Act 2001 (Cth). In particular, it appears the plaintiffs contended the business was sold at a significant undervalue, because the purchaser failed to pay amounts totalling $313,005.75 on account of:

    goodwill to a value of $184,824.38;

    cash at bank to a value of $18,727.37; and

    plant and equipment to a value of $109,005.75.

7    The progress of proceeding BS159 of 2005 is not entirely clear from the material before me. It appears that the matter was listed for a five day trial in April 2018, but that those trial dates were vacated. From the material before the Court, however, it is apparent that the following costs orders have been made against the bankrupts in proceeding BS159 of 2005:

    12 August 2016: an order that the bankrupts (and two corporate entities) pay costs of and incidental to the application filed by the applicants on 11 July 2016, such costs to be assessed on an indemnity basis.

    12 August 2016: an order that the bankrupts (and two corporate entities) pay costs of and incidental to the application filed by them on 7 July 2016, such costs to be assessed on an indemnity basis.

    23 June 2017: an order that costs ordered by Thomas J on 19 May 2017 be fixed in the sum of $23,000.

8    On 27 June 2017, following the filing of certificates of a costs assessor, the Registrar ordered that the costs pursuant to the two costs orders of 12 August 2016 be assessed at $25,740.40 and $24,112.46 respectively.

9    In 2014, Perpetual Trustee Company Ltd, the mortgagee of the premises at 21 Sydney Street Mackay, commenced proceeding 4288 of 2014 in the Supreme Court of Queensland to recover possession of the premises. Judgment was entered in favour of Perpetual Trustee Company Ltd on 17 November 2017 for payment in the sum of $1,417,630.89 and recovery of possession of the premises. Costs were awarded against the bankrupts on an indemnity basis.

10    When BS159 of 2005 was called on 26 September 2017, the bankrupts’ then lawyers sought, and were granted, leave to withdraw as solicitors on the record. The bankrupts then sought an adjournment of the trial, which the trial Judge refused, having regard especially to the fact that the bankrupts had been aware of the trial date for numerous months and had confirmed that there was no evidence to be led by them. The trial therefore proceeded, and the trial Judge adjourned overnight after the plaintiff had opened their case and led evidence. The bankrupts did not appear or participate in the proceeding on the following day. Judgment was reserved and orders were subsequently entered on 17 November 2017.

11    On 27 November 2017, Mrs Hodge filed a notice of appeal against the orders of 17 November 2017. At the time of filing, the basis of the appeal was that the trial Judge should have granted the bankrupts’ request for an adjournment on 26 September 2017. Since that time, it appears that Mrs Hodge has sought legal advice and the possibility of raising a further ground, relating to allegations of predatory lending. No such argument was put before the trial Judge.

Creditor’s petition in respect of Lynette Margaret Hodge

12    On 30 October 2017, the Mr Offermans filed a creditor’s petition against Mrs Hodge in QUD587/2017. The creditor’s petition was amended to include Mackay Spares Parts (Trading) Pty Ltd as the second applicant creditor, and to amend the amount of the debt following payment of one of the costs orders.

13    Together with the creditor’s petition, Mr Offermans filed an affidavit of service, in which the deponent attested that he had served a bankruptcy notice and related orders on Mrs Hodge on 24 July 2017. The debt the subject of the bankruptcy notice amounted to $72,852.86 and included:

    Costs assessed at $25,740.40 pursuant to the orders of the Registrar of the Supreme Court of Queensland dated 27 June 2017, and referable to the orders of Flanagan J of 12 August 2016;

    Costs assessed at $24,112.46 pursuant to the order of the Registrar of the Supreme Court of Queensland dated 27 June 2017 and referable to the orders of Flanagan J of 12 August 2016; and

    Costs fixed at $23,000 pursuant to the order of Applegarth J of 23 June 2017 and referable to the orders of Thomas J of 19 May 2017.

14    The applicant creditors contended that Mrs Hodge had failed either to comply with the bankruptcy notice or to satisfy the Supreme Court of Queensland that she had a counter-claim, set-off or cross demand equal to or more than the sum claimed in the bankruptcy notice, being a counter-claim, set-off or cross demand that she could not have set up in the action in which the judgment referred to in the bankruptcy notice was obtained.

15    At the hearing before the Registrar on 2 February 2018, Counsel for Mrs Hodge applied for an adjournment of the hearing of creditors’ petition. That application was refused and the Registrar made a sequestration order against the bankrupt estate of Mrs Hodge, noting that the act of bankruptcy had occurred on 15 August 2017.

Creditor’s petition in respect of David Ross Hodge

16    On 3 November 2017, Mr Offermans filed a creditor’s petition in QUD600/2017 against Mr Hodge. On the same date, the applicant creditor filed an affidavit of service, in which the deponent attested that he had served Mr Hodge with a bankruptcy notice on 24 July 2017, together with orders of the Registrar of the Supreme Court and an order of Applegarth J of the Supreme Court. The affidavit annexed a copy of those documents. The bankruptcy notice related to debts in the amount of $72,852.86, being costs in Supreme Court proceedings consisting of the following:

    Costs assessed at $25,740.40 pursuant to the orders of the Registrar of the Supreme Court of Queensland dated 27 June 2017 and referable to the orders of Flanagan J of 12 August 2016; and

    Costs assessed at $24,112.46 pursuant to the order of the Registrar of the Supreme Court of Queensland dated 27 June 2017 and referable to the orders of Flanagan J of 12 August 2016; and

    Costs fixed at $23,000 pursuant to the order of Applegarth J of 23 June 2017 and referable to the orders of Thomas J of 19 May 2017.

17    The applicant creditors contended that Mr Hodge had failed to comply with the notice and, alternatively, had not satisfied the Court that he had a counter-claim, set-off or cross demand equal to or more than the sum claimed in the bankruptcy.

18    On 7 December 2017, the first return date, the creditor sought to amend the creditor’s petition to include Mackay Spare Parts (Trading) Pty Ltd as the second applicant. The application to amend was opposed but the Registrar made orders allowing the amendment.

19    At the oral hearing before me, an issue relating to service of the amended creditor’s petition was raised with Mr Martin QC. While there was an affidavit deposing to service of the original creditor’s petition, there was no material before the Court proving that service of the amended creditor’s petition had been properly effected.

20    Initially, Mr Martin QC indicated that the Registrar had proceeded on the basis that there was no need for service of the amended creditor’s petition as the amendment had been opposed in Court by Counsel representing Mr Hodge. However, this was not reflected in the Orders of the Registrar dated 7 December 2017, in which the Registrar ordered as follows:

1.     The applicant be granted leave to amend the Creditor’s Petition QUD600/2017 to join MACKAY SPARE PARTS (TRADING) PTY LTD (IN LIQUIDATION) ACN 010 064 687 as the second applicant.

2.    The petition be amended accordingly and filed and served by 12 December 2017.

3.    The petition be adjourned to 2.15 pm on 13 December 2017.

4.    Costs reserved.

21    The requirements for the service of creditors’ petitions are dealt with under the Bankruptcy Act and Bankruptcy Rules. As I noted to Counsel at the hearing before me, these requirements are strict and technical for good reason. During the course of the hearing, the creditor filed an affidavit of Mr Callum Argaet, deposing to having sent an email to Colwell Wright Solicitors on 12 December 2017 which attached the sealed amended creditor’s petition filed 12 December 2017.

22    Accordingly, I am therefore satisfied that there was proper service of the amended creditors’ petition concerning Mr Hodge in accordance with the Bankruptcy Act and Rules, and that the creditors could proceed with the amended creditors’ petition on 13 December 2017.

23    Returning to the issues primarily in contention before me – at the hearing of the creditors’ petition before the Registrar on 13 December 2017, Counsel for Mr Hodge applied for an adjournment of the hearing of the petition. That application was ultimately refused and the Registrar made a sequestration against the bankrupt estate of Mr Hodge, noting that an act of bankruptcy had occurred on 14 August 2017.

application for review

24    The bankrupts seek to have the sequestration orders made by the Registrar in respect of their estates set aside on the basis that the Registrar should have granted the adjournments in each matter.

25    Before the Registrar, the bankrupts were both represented by Counsel. In respect of each of them, Counsel made submissions requesting an adjournment under s 33 of the Bankruptcy Act 1966 (Cth) until a date to be fixed at least seven days after the giving of judgment in Supreme Court of Queensland proceeding BS159 of 2005.

26    At the oral hearing before me, Mr Hodge made submissions on behalf of both himself and Mrs Hodge. Mrs Hodge did not seek to add any further submissions.

Cross-examination of Mr Hodge

27    Mr Martin QC cross-examined Mr Hodge at the oral hearing in relation to the second applicant creditor and various other corporate entities with which the bankrupts had been involved in the operation of the Mackay Spare Parts business.

28    Mr Martin QC cross-examined Mr Hodge in relation to the winding up of Mackay Spare Parts (Trading) Pty Ltd:

Okay. Now, for some time prior to 2004, you and your wife operated a family business called Mackay Spare Parts from premises in Sydney Street, Mackay, didn’t you?---That’s correct.

And in 2004, the entity that operated that business was a company called Mackay Spare Parts (Trading) Pty Ltd; that’s right, isn’t it?---That’s correct.

And on 2 April 2004, that company was wound up by the Supreme Court at Townsville upon the application of the Deputy Commissioner of Taxation, wasn’t it?---That’s correct.

Because it didn’t pay its tax?---The thing is, if you read my first statement, our accountant, Darryl Camilleri, had been to court arguing about a large credit on tax which we allege was owed to us, and it was his instructions that after he went to the court where he was – I believe that he was unable to get a verdict, his instruction was to fold the company up. Would you like to go into - - -

No, no, no - - -?--- - - - what the tax credits were, Mr Martin?

No, no, Mr Hodge, just answer my questions, and as her Honour said, you will have an opportunity to comment at the end. It’s true, isn’t it, that the company, Mackay Spare Parts (Trading) Pty Ltd, was wound up in 2004 upon the application of the Deputy Commissioner of Taxation?---That’s correct.

And – but the business of Mackay Spare Parts continued after that, didn’t it?---Yes. Yes, Mr Martin.

Yes. And the name of the new company that ran that business was Mackay Spare Parts Pty Ltd?---That is correct.

And you and your wife at various times were directors of that new company, Mackay Spare Parts Pty Ltd?---Yes.

Right. Now, you say that you paid all of the creditors of the business when the company went from Mackay Spare Parts (Trading) to Mackay Spare Parts Pty Ltd?---That is correct.

Right. But you didn’t pay anything to the Deputy Commissioner of Taxation, did you?---That is correct.

Why not?---Because we believed our credit was greater than what we owed.

But you didn’t fight that in court, did you?---Darryl Camilleri did.

And who’s Darryl Camilleri?---Our accountant.

So he went to court on your behalf before the Supreme Court of Townsville and disputed the winding-up order, did he? Did he fight it?---No, I believe, your Honour – I believe, Mr Martin, that he went to court in Brisbane. He specifically went to court and he represented us, and he came back with the decision that it was a waste of time.

So the amount that the Deputy Commissioner of Taxation was claiming was not paid, was it?---That was correct.

All right. So you paid everyone else, but you didn’t pay the Deputy Commissioner of Taxation?---As I said, Mr Martin, our debt – our credit was higher than what our debt was.

But you didn’t dispute that, though, did you, in court successfully?---I don’t – I do not recall.

Right?---I know that Darryl Camilleri went to court in the Supreme Court of Brisbane, and had a dispute about the Taxation Department that was money that was that.

All right. So – but in any event, you lost that battle, didn’t you, with respect to the tax that was owed?---I don’t think we – I don’t think we fought it.

Didn’t fight it, but you didn’t pay any money either, did you, to the ATO?---As I just said, Mr Martin, we don’t believe we owe them any money.

I see. So based upon that belief, you thought the better thing to do was to simply move the business to a new company. Is that right?---That was my instructions from Darryl Camilleri.

You mean, that was the advice he gave you?---That is the advice he gave me.

All right. Because, in fact, the company at that time – that is Mackay Spare Parts (Trading) – it wasn’t viable without your support, was it?---That is correct.

29    Mr Martin QC then cross-examined Mr Hodge in relation to the transfer of the Mackay Spare Parts business to MSP Engines in 2013:

All right. So rather than fight the tax department, you thought it was better to move the business again and just not pay - - -?---That’s correct.

- - - the tax department?---That was our advice.

All right. Do - - -?---And we had a different accountant then too, sir.

Tell me, did you think that was an honest thing to do, to move the business over and not pay the tax?---I believe it’s honesty that they should have instigated the credits that we – we had two lots of credit that we applied for back in 2004.

Well, obviously, they didn’t accept those credits, did they, Mr Hodge?---Well - - -

They didn’t accept the credits?--- - - - it appeared they weren’t – that – that’s correct.

Right. And so they issued the company with a statutory demand. Did you apply to set aside the statutory demand?---I beg your pardon?

Did you apply to set aside the demand that the ATO sent to the company in 2013?---Mr Martin, I think you will understand - - -

No, just answer my question. Did you apply to set aside the statutory demand that would have been served on the company in 2013?---That was left to my accountant and solicitors. I wouldn’t know.

And did you go to court in 2013 and oppose the second order for winding-up, or the order for winding-up of Mackay Spare Parts Pty Ltd. Did you do that?---I believe there was some court action but I don’t know what it was.

And then when you transferred the business of Mackay Spare Parts in 2013 to MSP Engines Pty Ltd, you used the services of a firm of accountants in Melbourne called DNV Accountants, didn’t you?---That’s correct.

Why did you use accountants in Melbourne to assist you with that transfer?---I believe they approached us when we had a notice from the tax department.

So did you go down to Melbourne and see them?---Yes.

All right. And did they advise you to incorporate a new company and transfer the business over to it?---Yes.

All right. Now, can you recall when you effected that transfer in December 2013 who was the director or directors of MSP Engines Pty Ltd?---Mr Martin, there was a company set up before that, MSP Services first, and then the MSP Engines was set up.

All right?---And that MSP Engines, I believe, was me.

But the original director of that company wasn’t you. It was a lady by the name of Nicola Griffin, wasn’t it?---That is correct.

And Ms Griffin was an administrative clerk who worked in the office of the accountants of DNV accountants. That’s right, isn’t it?---I do not recall what she was, but she was the director that was put in there by that accountant.

And she lived in Melbourne, didn’t she?---Yes.

And she had nothing whatsoever to do with the running of the business of Mackay Spare Parts, did she?---Not really.

What do you mean “not really”?---Well, she was a director. There was discussions with her.

Did she ever come to Mackay?---No.

It was you and your wife that continued to run the business of Mackay Spare Parts - - -?---That is correct.

- - - didn’t you?---That is correct.

All right. So, in fact, it was somewhat of a sham or a fraud, wasn’t it, to suggest – just let me finish – to suggest that Ms Griffin was the sole director of a company that operated a spare parts business in Mackay, wasn’t it?---Repeat that, sir.

It was – it was a sham or a fraud. It was an attempt by you to distance yourself from this business when you transferred it in December 2013. That was the plan, wasn’t it?---That was done on the – on the – that was done by the accountants in Melbourne.

So did you think – I appreciate you’re not a lawyer, but did you think it was appropriate to operate a business in Mackay by a company where its sole director was an administrative clerk in an accounting firm in Melbourne? Did you think that was the appropriate way to operate this business?---I believe there’s a lot of businesses have their directors in different towns.

Yes, but you know full well that Ms Griffin had nothing whatsoever to do with the running of your business. You’ve already told the court that?---It is too far back and I do not remember.

See, in fact, it gets worse, Mr Hodge, because what happened then is that the liquidators, each time you moved the business, they had to join new companies to these proceedings in the Supreme Court, and they joined MSP Engines Pty Ltd to this proceeding, and your solicitors, Colwell Wright, Mr James Wright, he applied to strike out the claim against MSP Engines Pty Ltd on the basis that at the time of the transfer, you weren’t a director of MSP Engines; Nicola Griffin was. Do you – do you recall them making that application?---No, I do not.

30    Mr Martin QC cross-examined Mr Hodge in relation to the costs orders the subject of the debtin the bankruptcy notice served on Mr Hodge:

Now, Mr Hodge, were you aware that that application that your solicitor brought to strike out the claim against MSP Engines was, in fact, dismissed with an order for indemnity costs. Were you aware of that?---I wouldn’t have a clue.

Well, in fact, the bankruptcy notice that was served on you and your wife related to costs orders in the Supreme Court proceedings, didn’t it?---So is this the one against the company?

It was – this was against the company and you?---Because we paid the one against the company.

Yes. Well, I will tell you what I will do - - -

…

MR MARTIN: I’m going to give you a copy of your bankruptcy notice, and I’ve got a working copy here for your Honour. Now, Mr Hodge, that was the bankruptcy notice that was served on you and your wife, wasn’t it, that gave rise to your bankruptcy?---Yes.

Now, if you go to the very back of that document – and what I’ve done is I’ve actually numbered the pages. So these are pages 10 and 11 of that bundle?---I’ve got 10.

Is there not a page 11 at the back?---No. It must be the next one. It’s not marked.

It’s not marked, is it?---That’s okay.

Now, page 10 is an order of Flanagan J of the Supreme Court of Queensland on 12 August 2016?---Yes.

All right. In the Supreme Court proceedings. Now, if you look at paragraph 3, it says there that:

The application of 7 July 2016 is dismissed.

See that?---Yes.

That was your application to strike out the claim against MSP Engines, the document I just showed you earlier?---Yes.

All right. And then the next order, paragraph 4, is that:

The respondents –

that’s you and your wife –

and MSP Engines pay the costs of that application on the indemnity basis.

Do you see that?---Yes.

All right. Do you understand the difference between costs on the ordinary basis and costs on the indemnity basis?---No, your Honour. No.

Did your solicitor explain to you that costs are awarded by the court on an indemnity basis when the court is satisfied that the litigants or their solicitors have conducted themselves unreasonably?---That could be so.

And so your solicitor didn’t explain to you why an indemnity costs order was made against you?---I don’t believe so.

See, I suggest to you that an indemnity costs order was made against you and this company, MSP Engines, because there was no reasonable basis for filing an application to strike out the claim against it?---We shall see.

No, no, that decision has been made, Mr Hodge?---Because - - -

That decision was made by Flanagan J. He looked at the nature of the application, and in particular, the fact that Ms Griffin was a director for some time and that seemed to be the basis of your contention there was no claim against MSP Engines, and he thought that your argument in that regard was so unreasonable so as to justify an order for indemnity costs. Did you appreciate that?---Mr Martin, as I said, I don’t believe the court was ever told the truth.

MR MARTIN: And then – so there was an order for indemnity costs made on that occasion. And then if you then turn to page 5 in the bundle of that documents, that’s an order of Thomas J of the Supreme Court on 4 May 2017. Now, you will see there that Thomas J ordered that you and your wife and a new company, the fifth respondent, Mackay Spare Parts & Services Pty Ltd pay costs on the indemnity basis. Do you see that?---Yes.

So another indemnity costs order. Now, just while we’re at that, you transferred the business on a third occasion at the end of 2016 to this company, the fifth respondent, Mackay Spare Parts & Services Pty Ltd, didn’t you?---That is correct, because you got an order to take control of that company and I wasn’t working for you.

31    Mr Martin QC cross-examined Mr Hodge in relation to the allegations of fraud by Mr Hodge:

I’m sorry – I’m sorry, Mr Hodge, why did you cause the business of Mackay Spare Parts to be transferred on a third occasion to another company of which you or your wife were a director?---Because our solicitor lost the case to stop you getting control of our company, and as the MSP Services company was registered before the MSP Engines company, we moved it across to the MSP Engines company because we weren’t going to have no intention of working for Offermans.

All right. So as I understand it, there has always been a claim from the outset that the business of Mackay Spare Parts is held on trust for the original company that you moved the business away from, Mackay Spare Parts, and you were doing everything within your power to ensure that Mr Offermans or that company didn’t get their hands on your business. Is that right?---Because you have been fraudulently making claims.

Now, you said that in your opening to his Honour. What fraudulent claim do you say Mr Offermans – Mr Offermans has made in these Supreme Court proceedings? Fraudulent. I mean, that’s a serious allegation?---Well - - -

What’s the fraud that he has alleged?---Well, Mr Martin, let’s have a look at it. If we have a look at my exhibit DRH-1 where Knights Insolvency was appointed receivers of that company, they have made a claim in there that we had goodwill of 150,000, we had plant and equipment of 109,000, and we had cash at the bank of 23,000. Then lo and behold, somehow or other, Knights got the – took over this file. I would suspect that for Knights to take over the file – sorry, for Offermans to take over the file from – from Knights and Knights allegation there was 300 – approximately $300,000 of assets in there, what type of transaction took place so Offermans could take over that file?

I will just stop you for a moment there. In the Supreme Court proceedings, you filed defences in which various admissions have been made. And one of those admissions is that the original liquidator appointed was Trevor Schmeerer – Trevor John Schmeerer. He retired as a liquidator and Mr Offermans was appointed in his place. Now, you’ve admitted that in the Supreme Court proceedings?---Mr Martin, if you go back to my – my letter that I put in there, I’m saying that I left all this up to my accountants and my solicitors up until the middle of last year, approximately, where – and I’m under oath now, so, Mr Martin, I’m telling the truth – is that we changed accountants and the accountants said to us if we had a competent person looking after our affairs back in 2004, these allegations would not have gone past 2004. So where you and your statement said that you couldn’t find any of our paperwork, the only balance sheet you could find was 1998 balance sheet and nothing else existed because of our sloppy paperwork is ..... lies. So me and my wife went through all the files and it just so happens that back in those days, there used to be a situation where you got paperwork and it used to vanish the ink on it, we photocopied a lot of it and we went through his files and we’ve proved that you’re blatant liars.

Now, what had - - -?---So if you want to go and look at Mr Offermans’ statement, let’s look at this - - -

No. No. Mister - - -?---This plant and equipment of - - -

Mr Hodges, just stop there for a moment?---$109,000 you got off the ’98 balance sheet. Show me on the ’98 balance sheet where you’ve got 109,000. I will show you the ’98 balance sheet and it hasn’t got that on there. And I will also show you the ledger that was put out by Bennett Partners which proves what the figures were in 2003.

Now - - -?---You’re dishonest, Mr Martin. And you have to admit fraud.

Mr Hodge, you’ve – in answer to my question about the allegation of fraud, you took me to exhibit DRH1 to your affidavit, which is an extract of a report by the then-liquidator of the company Mackay Spare Parts (Trading) in which he sets out, following – this is in the third paragraph:

Our investigations into the company affairs based on information obtained from the company’s accountant, the value of the business as at 31 October can be summarised as follows.

Now, when in there is there a fraudulent statement by the liquidator? Where do we see a fraudulent statement?---I’m saying that you – in your statement of claims, in your – are we look at Mr Offermans’? Let’s go to Mr Offermans, because he’s now the current – current liquidator.

No. No. No. Mr Hodge, I want you to be very careful. I asked you where the allegation of fraud was. And in answer to that, you directed me and the court to exhibit DRH1 to your affidavit, which is an extract from a report prepared by a liquidator, an officer of the court. Now, I’m asking you where on that page, in DRH1, do we see something that is fraudulent?---Fraudulent on good will on $150,000. Fraudulent on the plant of equipment of $109,000. And fraudulent ..... 22,245.

All right. Let’s just break those down. So you say by the liquidator asserting that this business had goodwill of $150,000 and it’s said to be based on turnover and profitability, are you saying that that is a fraudulent statement in the liquidator’s report? A fraudulent statement?---I am saying that the liquidator did not look at the two exhibits that I put in there from Darryl Camilleri and Joe Cliff, the two accountants that were involved in the winding up of that company. And they both state there was no goodwill because the company was supported because of the losses the company had from injections of funds from the directors. And the second accountant, Mr Joe Cliff from AH Noel, states there was no goodwill available because the company was unable to pay rent for three years. So, Mr Martin, you’re trying to tell me that a company can’t pay rent has got $150,000 worth of goodwill. That is absolute disgraceful lies.

So, Mr Hodge, is there any evidence that the liquidator spoke to either of these accountants or had this information available to them when they prepared this report back in 2004?---Mr Martin, all I can say is, as I said earlier, all this has been left to the people like you and solicitors and accountants. And it was until last year when we decided – we always said things were dishonest. When we went through, we proved that the information that has been presented to the court was absolute untruths. We can prove in black and white situations that what the information that has been sent to the court is utter rubbish.

Well, you understand what’s meant by the word “fraudulent”. That means a person makes a statement knowing it to be false. You understand that, don’t you?---Well, you had all the paperwork.

Do you understand that, Mr Hodge? That when you use the - - -?---No, I don’t. I believe that you had the paperwork and you deliberately - - -

Mr Hodge - - -?---Used that to hide the facts.

Mr Hodge, listen to my question. Do you understand that when you say that somebody has been fraudulent, that means that they are making a statement knowing it to be false?---Well, you have done that, Mr Martin.

32    The remaining issues in the cross-examination of Mr Hodge included:

    the loan from Perpetual Trustee Company Ltd;

    the conduct of the proceeding before Daubney J in BS159 of 2005; and

    the transfer of shared in MSP Engines from Mrs Hodge to Melissa Turner (daughter).

consideration

33    Before the Registrar in both QUD587/2017 and QUD600/2017, Counsel who previously represented the bankrupts made submissions relying on the decision of Allsop CJ in Hutchings v Australian Securities and Investment Commission [2017] FCA 858. That case involved a review of the decision of a Registrar not to adjourn the creditor’s petition and to make a sequestration order. In those circumstances, Allsop CJ found that, as a result of the creditor’s petition not being adjourned, the bankrupt had lost a real opportunity of defending proceedings in another court.

34    The bankrupts’ former Counsel submitted before the Registrar that Hutchings was binding in these circumstances because the bankrupts would lose a real opportunity of defending their proceedings in the Supreme Court of Queensland.

35    In Hutchings the Chief Justice observed:

25.    The long and the short of it is that where a refusal of an adjournment would result in a serious injustice to the party requesting the adjournment, the adjournment should only be refused if that is the only way that justice can be done to the other party and, secondly, that although the granting or refusal of an adjournment is a matter of discretion, if an appellate court is satisfied that the discretion has been exercised in such a way as would result in an injustice to one of the parties, such appellate court has both the power and a duty to review the exercise of the discretion.

36    These submissions were not re-agitated by the bankrupts in the course of the application before me.

37    Before me, the bankrupts contended that the sequestration orders should be set aside because, in short, the bankrupts allege fraud. They submit further that the orders made against them should be vitiated, because “fraud vitiates all”. The bankrupts relied on the following in support of this contention:

    The British law is absorbed into the Australian law, by virtue of the Constitution and the Australian Law Act 1928, and this is authority for the proposition that fraud vitiates all.

    The valuation of $109,545 of the business’ plant and equipment (see LMH1) is “outrageously false and misleading”. Mr Hodge referred to a balance sheet from 1998 where it was valued at $40,000.00

    Mr Hodge indicated in oral submissions that he and Mrs Hodge changed accountants last year, and that their new accountant stated that if they had had a competent accountant in 2004, this case would never have gone past 2004.

38    (By the “Australian Law Act 1928”, I surmise that Mr Hodge actually means the Australian Courts Act 1828 (Imp) which provided (inter alia) that laws and statutes operating in England at that time were to operate in New South Wales and Van Diemen’s Land).

39    In submissions and in cross-examinations, Mr Hodge made numerous allegations of fraud against multiple people, including Mr Martin QC and his former accountant. In the course of the oral hearing, Mr Martin QC remarked that Mr Hodge appeared to allege fraud against anyone who did not agree with Mr Hodge.

40    Counsel for the creditors identified the conduct by the bankrupts in relation to the Mackay Spare Parts business as classic “phoenix activity”. The creditors rely on the following evidence, disclosed during the cross-examination of Mr Hodge, in support of this contention:

    Mr Hodge stated that the debt to the Australian Taxation Office, which was the basis for the winding up order against Mackay Spare Parts (Trading), was never paid and was not challenged because the bankrupts’ accountant at that time told the bankrupts that this would be useless.

    Mr Hodge gave evidence that the Mackay Spare Parts business had been transferred to and from various corporate entities.

    Mr Hodge stated that Mrs Hodge had transferred her shares in Mackay Spare Parts & Services Pty Ltd to her daughter and appointed her friend Gary to be the sole director just prior to her bankruptcy, so that they would not lose the company. Mr Hodge stated that they did not want to “work for” Mr Offermans, the first applicant creditor. Mrs Hodge’s shares were subsequently transferred back to the liquidator.

41    Counsel for the applicant creditors submitted that the material before the Court demonstrated that the position of the bankrupts with respect to insolvency is now worse than it was at their respective hearings before the Registrar. Mr Martin submitted in particular:

    Their only source of income was the business of Mackay Spare Parts.

    The bankrupts owe approximately $1.4 million by way of a judgment debt to Perpetual Trustee Company Ltd, which is secured over the Sydney Street Property. The only evidence before the Registrar, and now before this Court, in the absence of a valuation, is that the Sydney Street Property is worth significantly less than the amount of the judgment debt. Possession of the business premises has now been recovered by Perpetual Trustee Company Ltd.

    The bankrupts have been the subject of multiple orders for indemnity costs by Daubney and Flanagan JJ of the Supreme Court of Queensland. Given the seriousness of an order for indemnity costs, this indicates that the bankrupts’ causes of action in the Supreme Court of Queensland were without merit.

    The ground of appeal on which the bankrupts rely in the Court of Appeal of Queensland, and in relation to which they seek a costs order to offset the relevant debt in the case, concerned the refusal of Daubney J in the Supreme Court to adjourn the hearing of the trial in that Court on 26 September 2017. The applicant creditor noted that adjournments are a matter of discretion for the trial Judge in the Supreme Court of Queensland and that, accordingly, it would be difficult to establish appellable error on the part of the trial Judge. Further, other grounds referred to by Mrs Hodge, including those relating to predatory lending, present their own problems in that they were never argued before the primary Judge.

    The bankrupts sought a stay of the order for possession made by the Supreme Court of Queensland on 17 November 2017, however, it appears that application was refused and Perpetual Trustee Company Ltd took possession of the Mackay business premises on 26 February 2018. Counsel for the applicant creditor was unable to detail the reasons for the refusal, but noted that a common reason for refusing to stay the execution of an order is that there are insufficient prospects of success on appeal.

42    The applicant creditor also noted that it is not the case that the bankrupts are arguing that they have something of value or some liquid asset that could be sold in order that the bankrupts would be able to pay their debts as and when they fall due. The case is that they want to get a costs order that would “eclipse” the current debt giving rise to the act of bankruptcy. In the applicant creditor’s submissions, this does very little in terms of establishing the solvency.

43    In summary, in this case it appears that the applicants seek to have the orders of the Registrar set aside, fundamentally in reliance on the possible outcome of an appeal from a judgment of the Supreme Court of Queensland:

    referable to the exercise of judicial discretion (namely, refusal to adjourn) on the part of the Supreme Court Judge;

    where reasons were given by the Daubney J for his refusal to adjourn;

    in circumstances where the applicants did not participate on the second day of trial in the Supreme Court;

    where the applicants led no evidence on their behalf at the trial;

    where the applicants have unsuccessfully sought a stay of execution of the orders of the Supreme Court; and

    where, although the applicants were represented by lawyers in the period prior to the hearing, it appears that they seek to raise new issues in the appeal (that is, referable to predatory lending) which were not before the Supreme Court at first instance.

44    While it is important for the Court to be mindful of the prospect of serious injustice to parties in the position of Mr and Mrs Hodge, I also note their concessions on the pleadings that they have caused the business of Mackay Spare Parts to be transferred on three occasions since 2003, including in circumstances where the entity conducting the business was on the cusp of an application for winding up by the Australian Taxation Office. This was also evident throughout the cross-examination of Mr Hodge by Mr Martin QC. I further note the evidence before the Court that Mrs Hodge transferred her shares in Mackay Spare Parts & Services Pty Ltd to her daughter, and appointed their friend to be sole director. There appears no real doubt that the conduct of Mr and Mrs Hodge can properly be described as “phoenixing” in respect of their business, namely transfers of the relevant business and its assets to successive companies in order to preserve that business and assets in the face of creditor demands.

45    On the material before me, the merits of their prospective appeal against the orders of the Supreme Court appear poor, and the prospects of success of the appeal appear very low. Consequently, I am not persuaded that Mr and Mrs Hodge suffered serious injustice from the respective decisions of the Registrar. I also form this view in light of undisputed facts concerning their conduct in respect the business of Mackay Spare Parts – an adjournment on the part of the Registrar of both cases would rather have caused serious injustice to Mr Offermans and the creditors of Mr and Mrs Hodge, while postponing the appropriate administration of their respective bankruptcies.

46    No reviewable errors in the refusals of the Registrar to adjourn the hearings of the creditors’ petitions have been demonstrated.

conclusion

47    It is appropriate to order in both QUD587/2017 and QUD600/2017 that the application to review the Registrar’s decision be dismissed. In the ordinary course, costs follow the event (see Oshlack v Richmond River Council (1998) 193 CLR 72) and no reason has been provided for any order other than that costs be awarded against the applicants.

Associate:

Dated:    23 November 2018