Australia & New Zealand Banking Group Ltd (in the matter of Demarco) v Demarco

2 It is not in dispute that Mr Demarco has not complied with the bankruptcy notice. Thus, he committed the act of bankruptcy on which the petition was founded within six months before the presentation of the petition (Bankruptcy Act 1966 (Cth), s 44(1)(c)). Affidavit evidence was read at the hearing which establishes the matters specified in s 52(1)(a), (b) and (c) of the Bankruptcy Act. There was no dispute about those matters and I am satisfied with the proof of them. 3 Mr Demarco's notice of intention to oppose the petition stated, as his intended grounds of opposition: "1. I did not commit an act of bankruptcy. 2. I am solvent. 3. I was negotiating with the Bank to settle the matter starting on 9th November 1999. The official rejection did not come untill [sic] 29th Dec by which the time to comply with the bankruptcy notice had lapsed." 4 Despite the terms of the first ground, however, Mr Demarco did not dispute that, as a matter of fact, he did not do either of the things which the terms of the bankruptcy notice required and it follows, as I have said, that he committed an act of bankruptcy. Mr Demarco relied principally on his second ground - that is, he claimed that he was able to pay his debts (s 52(2)(a)). In support of that ground Mr Demarco sought to read an affidavit which he had sworn on 2 April 2000, which had been filed in Court on 3 April 2000, and to which were annexed various documents said to be relevant to his financial position. Large parts of that affidavit, and several of its annexures, were inadmissible and were rejected. Mr Demarco sought an adjournment of the hearing on two grounds. One was that he had not been informed, before the hearing on 28 April 2000, of the objections to his affidavit and had therefore been deprived of an opportunity to give additional evidence to make good the deficiencies. The other ground on which he sought an adjournment was that, as he informed me from the bar table, negotiations between him and the Bank for the purpose of settling the Bank's claim had continued until very shortly before the hearing, when the Bank had rejected his final offer. There was little, if any, factual dispute between Mr Demarco and the Bank as to the terms, or course, of the negotiations. Mr Demarco said, however, that the fact that the final rejection came only very shortly before the hearing meant that he was deprived of the opportunity to raise - as he claimed that he could - the funds necessary to pay in full the debt claimed by the Bank. 5 I declined to grant an adjournment. I did so, in relation to the point arising from the inadequacies of Mr Demarco's evidence, on the basis that it was possible, at least in the first instance, to consider the question of Mr Demarco's ability to pay his debts on the assumption that he could rely on the annexures to his affidavit (as will be seen, on that assumption I am not satisfied that Mr Demarco is able to pay his debts). Additionally - and this was relevant to both grounds on which an adjournment was sought - the Bank accepted that it was appropriate that, if a sequestration order were made, proceedings under it should be stayed for twenty one days pursuant to s 52(3) of the Bankruptcy Act: the period of twenty one days, together with any period during which judgment were reserved, would give Mr Demarco a sufficient opportunity to raise, if he could, the funds required to discharge the debt on which the Bank relied. 6 The relationship between the terminology of s 52(2)(a) ("able to pay his or her debts"), that of the definition of "solvent" in s 5(2) ("the person is able to pay all the person's debts, as and when they become due and payable") and that of earlier statutory formulations was considered by Katz J in International Alpaca Management Pty Limited v Ensor [1999] FCA 72. For the reasons given by his Honour (see especially par 17 and par 18), in my view it remains correct to apply, in relation to s 52(2)(a), the test of solvency stated by Barwick CJ 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." 7 Mr Demarco is a real estate agent and a builder. The annexures to his affidavit comprise a statement of assets and liabilities of Mr Demarco prepared by an accountant; a valuation of a property at North Bondi which Mr Demarco says he owns (and although he has not given evidence directly of that, I see no reason to doubt it); a facsimile transmission from Citibank, which apparently is the mortgagee of the North Bondi property, stating the amount required to discharge the mortgage as at 13 March 2000; a copy of a lease of part of the North Bondi property, to, apparently, a firm of engineers for use as an office; an unsigned lease of, apparently, the rest of the building at North Bondi together with two forms of application for lease, apparently signed by the intended lessees; an appraisal, or valuation, of Mr Demarco's real estate business; a letter from Provident Capital Financiers to (apparently) a broker acting for Mr Demarco offering, subject to certain conditions, a loan on mortgage of the North Bondi property; a statement setting out a proposed application of a loan from Provident Capital Financiers; a letter from an accountant to Mr Demarco stating that Mr Demarco's tax returns for the years from 1996 to 1999 "were completed this afternoon [31 March 2000] and have been made available to you immediately"; two letters from a firm of solicitors, R L Kremnizer & Co, to (apparently) another broker, each conveying an offer, subject to conditions, of a loan on the security of the North Bondi property - one a loan of $308,000 on a first mortgage, the other a loan of $72,000 on a second mortgage; and, finally, a copy of a letter from Citibank to Mr Demarco offering various alternative bases, as to term and interest rate, for a continuation of the existing secured loan. 8 The valuation of the North Bondi property is stated to have been prepared by a registered valuer on Mr Demarco's instructions. It values the North Bondi property, as at 10 March 2000, at $525,000. The value is stated as a market value: that is, the estimated amount for which the property should exchange on the date of the valuation between a willing buyer and a willing seller in an arm's length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion. The valuation also states an "anticipated gross realisation figure" of $1,150,000, based on separate sales of strata lots following a redevelopment. It was not suggested, however, that that aspect of the valuation should be taken into account for present purposes. The appraisal of Mr Demarco's real estate business values it, on the basis of a rent roll with a management fee income of $33,690 per annum, at $116,000. In the statement of assets and liabilities, the assets and liabilities of Mr Demarco are listed as follows: "Assets

1. 375A Old South Head Road North Bondi 525000.00
2. DeMarco's Reality [sic] Bondi Beach (Sole Proprietor) 116000.00
3. Godfrey C Demarco V Noga Maman T/as Noga's Cuisine District Court Plaint No. 5914 of 1996 Claim for Building work carried out for & on behalf of Noga Maman. 76560.09
4. Building Debtors & Work in Progress 61422.00
5. Motor Vehicles 20000.00
6. Computers & Office Equipment 15000.00
7. Builders Tools of Trade, Plant & Equipment 20000.00
8. Costs order against Tibor Thomas Glass in District Court Plaint No. 9393 of 1995. Plaintiff, Tibor & Helen Glass V Godfrey Charles DeMarco Defendant. Plaintiff Discontinued proceedings & agreed to pay Defendants cost (Mulally Mylott Solicitors Estimate) 10000.00
9. Cost order against ANZ Bank in Federal Court Proceedings Plaint No. NG 7477/97 ANZ V Godfrey DeMarco (Mulally Mylott Solicitors Estimate) 10000.00
10. Furniture & Fittings 15000.00 868982.09 Liabilities
11. Mortgage on 375A Old South Head Road, North Bondi Balance outstanding as at March 8, 2000 292700.00
12. Building - Creditors 20000.00
13. Leases & Hire Purchase Agreements 9515.00
14. Commonwealth Bank Overdraft 16000.00
15. Installment [sic] Order File No 10858/99 TT Glass & G C DeMarco Installment's [sic] of $200.00 per week. 17000.00
16. Judgement by ANZ against DeMarco Supreme Court proceedings 4050 of 1996 the subject of this Creditors Petition 54439.65
17. Judgement by T & H Glass Holdings Pty Limited against G DeMarco Supreme Court proceedings 1218/96 - 86% of costs Holding Appeal lodged 31 January 2000 409654.65"