Boscolo, Sylvia v Botany Council [1996] FCA 897

Counsel for the appellant and counsel for the respondent debated before this court the question whether it is the existence of the curial "restraint imposed ... on ... the property of the judgment debtor" at the time of issue of the bankruptcy notice, or that existence at the time of service of the notice, or that existence at both those times, which raises the "equity" to which Lord Esher and Beaumont J. referred. This debate was provoked by the circumstance that in this case no such a restraint was proved to have existed at the time when the bankruptcy notice was issued. The question under consideration was carefully argued by counsel upon a number of authorities : see Re Moss; Ex parte Tour Finance Ltd. (1968) 13 F.L.R. 101; Walsh v. Deputy Federal Commissioner of Taxation (1984) 156 C.L.R. 337; Re Di Giacomo; Ex parte Boral Steel Ltd. (1983) 68 F.L.R. 106; Schekeloff; Ex parte Schekeloff v. The Hopkins Group Ltd. 1989) 22 F.C.R. 407. But, if it be assumed that the existence of the restraint at the time of service of the bankruptcy notice and throughout the period, in this case of 28 days, allowed for compliance with its requirements, suffices to raise the "equity", the evidence before Einfeld J. could not in my opinion support a finding that the Family Court order did "in a business sense" prevent the appellant from paying the amount claimed in that notice before the expiration of that period. The evidence before the trial judge as to the appellant's assets and liabilities was of the values and amounts in May and June 1966, not in January or February 1995. It is possible to draw from the evidence an inferred finding as to the approximate values of the assets and the approximate amounts of the liabilities at the time of service of the bankruptcy notice. The only asset (other than cash at bank and household and personal effects worth in the aggregate less than 1000) which might in January and February 1995 have been a source of funds for payment of the amount claimed in the bankruptcy notice was the land subject to the Family Court order said to be worth $125,000 and constituting security for a debt of about $55,000 to a bank. The liabilities aggregated about $65,000. It is not unlikely, but I hesitate to infer, that at that time some of the liabilities were judgment debts on which statutory interest had by then accrued. There was no evidence as to the income of the appellant at that time. There was evidence that in the middle of 1996 funds sufficient to pay the debt on which the bankruptcy notice had been founded might have been promptly obtained if the land subject to the Family Court order had not been subject to that restraint. But there was no evidence as to the availability of such funding in January and February 1995. In order to determine whether the Family Court order had "in a business sense prevented the debtor from paying" the court would have to determine whether a prospective lender to whom the debtor's financial circumstances were truthfully disclosed would have advanced the amount required to pay the amount claimed in the notice upon the security of the land, if the land had been free of the curial restraint. such inferred findings as the evidence permits concerning those financial circumstances at the beginning of 1995 do not justify a conclusion that a hypothetical lender would have made the required advance, or a conclusion that the appellant would have sought such an advance. There was no evidence by the appellant that she would have sought such an advance during the period limited for compliance with the bankruptcy notice. Her testimony that in the middle of 1996 she desired to seek such an advance in order to prevent sequestration of her estate then is an unsafe basis for an inference that she would have sought the advance in order to comply with a requirement of the bankruptcy notice. Although s.52(1)(a) of the Bankruptcy Act 1966 lays the burden of proving the act of bankruptcy alleged on the petitioner, it is for a debtor to provide evidence capable of raising the equity to which reference is made in the authorities, in my opinion. No such evidence was in my opinion adduced and the act of bankruptcy was in my opinion proved. The appeal should be dismissed with costs. The trustee of the appellant's estate appeared by counsel on the hearing of the appeal, and was granted leave to be heard as amicus curiae. The trustee's costs of that appearance should in my opinion be ordered to be costs and expenses of the trustee within s.109(1)(a) of the Bankruptcy Act 1966. I certify that this and the 8 preceding pages are a true copy of the Reasons for Judgment of the Honourable Justice Jenkinson.

IN THE FEDERAL COURT OF AUSTRALIA) ) NEW SOUTH WALES DISTRICT REGISTRY) No NG 570 of 1996 ) BANKRUPTCY DIVISION ) ON APPEAL FROM A JUDGMENT OF A JUDGE OF THE COURT B E T W E E N: SYLVIA BOSCOLO Appellant

• and - BOTANY COUNCIL Respondent Coram: Jenkinson, O'Loughlin and Sackville JJ Place: Sydney Date: 16 October 1996 REASONS FOR JUDGMENT O'LOUGHLIN J: I have had the opportunity to read a draft of the judgment of Jenkinson J in this matter. I agree with his Honour's reasons and the orders that he proposes. There is nothing further that I would wish to add. I certify that this is a true copy of the Reasons for Judgment of the Honourable Justice O'Loughlin Associate: Dated:

IN THE FEDERAL COURT OF AUSTRALIA ) NEW SOUTH WALES DISTRICT REGISTRY ) No. NG570 of 1996 GENERAL DIVISION ) On appeal from a judgment of a single justice of the Court BETWEEN:SYLVIA BOSCOLO Appellant AND:BOTANY COUNCIL Respondent CORAM: Jenkinson, O'Loughlin and Sackville JJ. PLACE: Sydney DATE: 16 October, 1996

REASONS FOR JUDGMENT SACKVILLE J: I am in general agreement with the conclusions and reasoning of Jenkinson J. However, I wish to add some observations. The proceedings before the trial Judge were brought by the present appellant pursuant to the Bankruptcy Act 1966 (Cth) ("the Act"), s.14(5) or s.31A(6). That review was conducted by way of a hearing de novo of the creditor's petition: Re Kwiatek and Kwiatek; Ex parte Big J Ltd v Pattison (1989) 21 FCR 374 (FCA/Northrop J). The appellant contended before his Honour that the act of bankruptcy, being non-compliance with the bankruptcy notice served on 21 January 1995, had not been established. This was because (so it was said) the requirements of s.40(1)(g) of the Act were not satisfied, in that the judgment on which the bankruptcy notice was founded was not one "the execution of which [had] not been stayed". The appellant contended, on the basis of the authorities referred to by Jenkinson J, that the time for determining whether the requirements of s.40(1)(g) have been satisfied is the date of service, rather than the date of issue, of the bankruptcy notice. She submitted that, at the date of service of the bankruptcy notice, the judgment was deemed to have been stayed. The deemed stay arose because of the order made by the Family Court of Australia on 19 December 1995, restraining the appellant from transferring or further encumbering a property at Carrington Road, Hamilton Hill, Western Australia. The appellant relied on the well-established principle that execution of a judgment is deemed to be stayed where a judgment creditor is not "in a position to issue immediate execution upon it": Ex parte Ide; In re Ide (1886) 17 QBD 755 (CA), at 760, per Bowen LJ; Re Pannowitz; Ex parte Wilson (1975) 38 FLR 184 (Fed Ct of Bankruptcy), at 187-188, per Riley J. It follows from this principle that there need not be an express order of a court staying the judgment before a deemed stay arises: Penning v Steel Tube Supplies Pty Ltd (1988) 18 FCR 568 (FCA/FC), at 575-576. The appointment of a receiver to take control of the debtor's property (as in Re Solomon; Ex parte Reid (1986) 10 FCR 423 (FCA/Beaumont J), or the making of an order under s.50 of the Act placing the debtor's property under the control of a trustee (as in Penning v Steel Tube Supplies), will have the effect of deeming the judgment to have been stayed. See also Director of Public Prosecutions v Kunz (1993) 43 FCR 374 (FCA/Ryan J). In Wiltshire-Smith v Mellor Olsson (1995) 57 FCR 572(FCA/FC), at 586-587, the Full Court accepted the proposition that a court order imposed on some only of the debtor's property, which has the "same practical effect" as the appointment of a receiver, should be "recognised as a relevant circumstance sufficient to disentitle a judgment creditor from proceeding immediately to execution". These comments were dicta only, since the Full Court found, on the facts of that case (at 590), that at the relevant dates there was nothing which had the practical effect of preventing the debtor from paying the judgment debt. In my opinion, I do not think it is inevitable that the principle applied in Re Solomon and Penning v Steel Tube Supplies should extend to a case where the practical effect of a court order "in a business sense" is to prevent the debtor from paying. In Re Solomon, Beaumont J pointed out (at 425) that a judgment creditor cannot, without the leave of the court appointing a receiver, levy execution on property comprised in the appointment of the receiver. In Penning v Steel Tube Supplies, the Full Court considered that the appointment by a court of a trustee to take control of the property of a debtor was indistinguishable, for present purposes, from the appointment by a court of a receiver of the debtor's property. The test formulated in Wiltshire-Smith v Meller Olsson takes the matter further. It makes the fate of a creditor's petition founded on non-payment of a judgment debt, where the judgment itself has not been stayed, dependent on a factual inquiry that is likely to be difficult and, from the creditor's perspective, uncertain. It is one thing to deem a judgment to be stayed where a court order prevents execution being levied on any of the debtor's property. It may be another to deem a judgment stayed where a court order affects only part of the debtor's property. In the second case, the impact of the court order on the debtor's ability to pay his or her judgment debts may well depend on facts and circumstances that are incapable of ascertainment by the creditor, short of a prolonged court hearing. I am, however, content to approach the present case on the following assumptions:

• the relevant date for determining whether the judgment in favour of the creditor is deemed to have been stayed is the date of service of the creditor's petition; and
• the test to apply in determining whether the judgment is deemed to have been stayed is that formulated in Wiltshire-Smith v Mellor Olsson. In Wiltshire-Smith v Mellor Olsson, at 586, the Full Court held that the onus lay on the debtor to prove affirmatively that the claim in respect of which the bankruptcy notice was issued could and would have been paid but for some act or omission on thecase where the debtor claims that the practical effect of a court order, in a business sense, was to prevent her paying the debt: compare the terms of ss. 50(1)(g) and 52(1)(a) of the Act. I do not think the question of onus needs to be resolved in the present case. This is because, in my opinion, the evidence was incapable of supporting a finding that, but for the stay order, the appellant would have used the property subject to the stay to obtain funds to satisfy the requirements of the bankruptcy notice, within the time specified in that notice. The evidence before the trial Judge was simply not directed to the appellant's financial position in January and February 1995. Rather, the evidence related to the appellant's financial position in about May or June 1996, some 15 months after the relevant time. Even so, the evidence fell short of establishing that in May or June 1996 the appellant could have borrowed sufficient funds on the security of the Hamilton Hill property (assuming the Family Court order were lifted) to pay the amount due to the judgment creditor within 28 days. The appellant's statements of financial affairs revealed that she had substantial debts, exceeding the claimed equity in the Hamilton Hill property; her income was very modest; and that she had experienced difficulty in paying her debts since 1988. Nor did the somewhat vague and incomplete evidence adduced by the appellant suggest that a particular lender was prepared to advance funds, so as to allow her to discharge the judgment debt within 28 days of her being required to do so. In these circumstances, I do not think that the evidence is capable of supporting an inference that in January and February 1995 the appellant would and could have obtained sufficient funds on the security of the Hamilton Hill property to pay the judgment debt due to the creditor. A fortiori, the evidence is insufficient to allow a conclusion that she could have done so within the 28 day period specified on the bankruptcy notice, had the order of the Family Court not been in place. I agree with the orders proposed by Jenkinson J.

I certify that this and the preceding 5 pages are a true copy of the Reasons for Judgment of the Honourable Justice Sackville. Associate: Dated: 14 October 1996

Heard: 17 September, 1996 Place: Sydney Decision: 16 October, 1996 Appearances: Mr D.A. Smallbone and Mr R.K.M. Rasmussen, instructed by John Burrell & Associates, solicitors, appeared for the appellant. Mr L.R. deV. Tyndall, instructed by Houston Dearn & Associates, solicitors, appeared for the respondent. Mr B.J. Skinner, appeared for the Official Trustee in Brankruptcy, instructed by the Australian Government Solicitor.