The estate of Silvana Mangano be sequestrated under the Bankruptcy Act 1966 (Cth).
The applicant creditor's costs of the petition be paid from the estate of the respondent debtor in accordance with the Bankruptcy Act.
A copy of this order is to be provided by the applicant creditor to the Official Receiver in Sydney within two (2) days.
THE COURT NOTES THAT:
The date of the act of bankruptcy is 11 May 2024.
A consent to act as trustee signed by Mr Gavin King has been filed under s 156A of the Bankruptcy Act.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
GOODMAN J
The applicant moves on a creditor's petition for a sequestration order under s 43 of the Bankruptcy Act 1966 (Cth). The creditor's petition describes a total debt of $160,993.32 owed by the respondent to the applicant pursuant to three sets of orders of the Local Court of New South Wales. The existence of that debt is not in dispute. The sole ground of opposition relied upon by the respondent is that she is able to pay her debts within the meaning of s 52(2)(a) of the Act.
Section 43 of the Act provides, in so far as is presently relevant:
43 Jurisdiction to make sequestration orders
(1) Subject to this Act, where:
(a) a debtor has committed an act of bankruptcy; and
(b) at the time when the act of bankruptcy was committed, the debtor:
(i) was personally present or ordinarily resident in Australia;
(ii) had a dwelling‑house or place of business in Australia;
(iii) was carrying on business in Australia, either personally or by means of an agent or manager; or
(iv) was a member of a firm or partnership carrying on business in Australia by means of a partner or partners or of an agent or manager;
the Court may, on a petition presented by a creditor, make a sequestration order against the estate of the debtor.
I am satisfied that the respondent has committed an act of bankruptcy within the meaning of s 40(1)(g) of the Act, in that: (1) she was served on 19 April 2024 with a bankruptcy notice issued on 8 March 2024 and which required payment of $160,993.32 by 10 May 2024; and (2) the respondent failed to comply with the bankruptcy notice.
I am also satisfied that when that act of bankruptcy was committed the respondent was personally present and ordinarily resident in Australia. It follows that each of s 43(1)(a) and (b) of the Act is satisfied.
Section 52(1) of the Act provides:
Proceedings and order on creditor's petition
(1) At the hearing of a creditor's petition, the Court shall require proof of:
(a) the matters stated in the petition (for which purpose the Court may accept the affidavit verifying the petition as sufficient);
(b) service of the petition; and
(c) the fact that the debt or debts on which the petitioning creditor relies is or are still owing;
and, if it is satisfied with the proof of those matters, may make a sequestration order against the estate of the debtor.
I am satisfied that each of the matters specified in s 52(1)(a) to (c) have been proven. I am also satisfied that each of the remaining formal requirements necessary to enliven the Court's discretion to make a sequestration order have been proven. I was also informed by the respondent's representatives that no point of a formal nature was taken and that the sole ground of opposition (and principal matter for determination) was the asserted solvency of the respondent.
Thus, the Court's discretion to make a sequestration order against the respondent's estate has been enlivened.
The respondent resists the making of such an order in reliance upon s 52(2) of the Act, which provides, in so far as is presently relevant:
(2) If the Court … is satisfied by the debtor:
(a) that he or she is able to pay his or her debts;
...
it may dismiss the petition.
The respondent bears the onus of proving that she is able to pay her debts: Culleton v Balwyn Nominees Pty Ltd [2017] FCAFC 8; (2017) 343 ALR 632 at 644 to 645 [44] (Allsop CJ, Dowsett and Besanko JJ). This onus on the debtor to establish their solvency is an onus on the balance of probabilities: Coates Hire Operations Pty Ltd v D-Link Homes Pty Ltd [2011] NSWSC 1279 at [66] (White J, as his Honour then was); Deputy Commissioner of Taxation v Bayconnection Property Developments Pty Ltd [2012] FCA 363; (2012) 127 ALD 64 at [60] to [61] (Robertson J). The nature of the evidence necessary to discharge the onus will vary from case to case. One would ordinarily expect a debtor resisting a creditor's petition on the basis that they are solvent to adduce the most cogent evidence available to them. Of course, and relatedly, all evidence falls to be assessed by reference to the relative capacity of each party to adduce evidence on the particular subject matter: Blatch v Archer (1774) 1 Cowp 63.
The applicant contends that the respondent's evidence as to solvency should not be accepted because that evidence falls short of the "fullest and best" available evidence. However, the position is more nuanced. There is no universal rule that a debtor whose evidence is less than the "fullest and best" available evidence thereby fails to discharge their onus of establishing their solvency: see Deputy Commissioner of Taxation v De Simone Consulting Pty Ltd [2007] FCA 548 at [10] to [14] (Finkelstein J); Coates Hire at [60] to [61] and [66]; Bayconnection at [60] to [61]. Indeed, in the case which appears to be the source of the expression "fullest and best evidence" in proving solvency - Commonwealth Bank of Australia v Begonia (1993) 11 ACLC 1075 at 1081 - Hayne J stated:
Ordinarily one would expect that on an application of this kind the company would provide the fullest and best possible material in support of its case. Thus one would ordinarily expect that the agreements between Texel and Redlock (for I would assume them to be written and not oral) would be produced in evidence.
(emphasis added)
As White J explained in Coates Hire at [61]:
Hayne J was describing the nature of the evidence one would expect a company to lead in opposition to the application that it be wound up in insolvency. His Honour did not say that only the fullest and best possible evidence of a company's financial position would be sufficient to displace a presumption of insolvency.
In De Simone Consulting, Finkelstein J stated at [14], in answer to a submission that a company seeking to prove its solvency must produce audited accounts:
…In each case a representative can come along attempting to prove solvency to avoid a winding up. Judges will look with care at the evidence especially if the judge suspects the company is or may be in a weak financial position. Dependant upon the degree of doubt justified by the facts, a judge may say that the only evidence he will treat as probative is "the fullest and best" evidence available - the kind that in Commonwealth Bank of Australia v Begonia (1983) 11 ACSR 609 Hayne J said was often necessary although interesting enough, not in that case. In some instances this may be the company's audited accounts together with verified proof of both the ownership and value of the company's assets. On the other hand there will be many instances where proof of that sort is not required. In such cases there is no good reason to put the company to the time, trouble and expense of producing audited accounts. In the end it will all depend upon each particular fact of a case.
(emphasis added)
The position was summarised by the Court of Appeal of the Supreme Court of New South Wales in Xu v Megaward Pty Ltd [2018] NSWCA 232; (2018) 130 ACSR 412 at 417 to 418 ([30] to [32]) (McColl, Meagher and Leeming JJA):
[30] First, Mr Xu complains that the accounts tendered by Megaward are not "the fullest and best evidence" of its financial position. This draws upon language used by Hayne J in Commonwealth Bank of Australia v Begonia Pty Ltd (rec and mgr apptd) (1993) 11 ACSR 609; 11 ACLC 1075 at 1081. However, he very properly acknowledged that there was not some inflexible rule that there was only one way of proving solvency, namely, by producing audited accounts. True it is that in some cases - especially if the company is in a weak financial position - a court may take the view that only such evidence would suffice to displace a presumption of insolvency. All this has been explained in a series of cases, including Deputy Commissioner of Taxation v De Simone Consulting Pty Ltd [2007] FCA 548 at [11]-[14] (Finkelstein J), Coates Hire Operations Pty Ltd v D-Link Homes Pty Ltd [2011] NSWSC 1279 at [60]-[61] (White J); and Deputy Commissioner of Taxation v Bayconnection Property Developments Pty Ltd (2012) 127 ALD 64; [2012] FCA 363 at [60]-[61] (Robertson J).
[31] Fundamentally, as was said in both of the last two decisions:
"Hayne J was describing the nature of the evidence one would expect a company to lead in opposition to the application that it be wound up in insolvency. His Honour did not say that only the fullest and best possible evidence of a company's financial position would be sufficient to displace a presumption of insolvency."
[32] That does not stand in the way of the fact that in many and probably most such applications, the company would be well advised to adduce the fullest and best possible evidence. That reflects the qualified force of the proposition that "the Court should ordinarily be presented with the 'fullest and best' evidence of the financial position of the respondent", applied in this Court in Expile Pty Ltd v Jabb's Excavations Pty Ltd (2003) 45 ACSR 711; [2003] NSWCA 163, which in turn reflects the qualified language used by Hayne J.
In Bayconnection, Robertson J at [61] expressed the view, with which I respectfully agree, that "…the 'fullest and best' evidence requirement is a tool to be used, where appropriate, by the finder of fact to evaluate the balance of probabilities".
In support of her contention that she is able to pay her debts, the respondent swore an affidavit dated 23 July 2024. From that affidavit, the respondent's answers in cross-examination, documents tendered on behalf of the respondent at the hearing (which she produced in answer to a notice to produce served by the applicant) and from the respondent's failure to produce documents in answer to particular paragraphs of the notice to produce, the following picture of the respondent's financial position emerges:
she receives an annual gross income of approximately $68,000 from her employment as a clerk;
she has cash at bank of $276,014.10 as at 14 October 2024 across numerous accounts with ING Bank, Bendigo Bank and the National Australia Bank;
she lives with her mother in a property owned by her mother and does not pay rent. She pays some of the expenses associated with that home;
she produced no documents in answer to those paragraphs of the notice to produce which called for documents evidencing ownership by her of real property, shares, debentures or bonds, from which I infer that she does not own any such assets;
she produced no documents in answer to a paragraph of the notice to produce which called for documents evidencing ownership by her of any vehicle in her name. As a result, I do not accept the respondent's assertion in her affidavit that she owns a motor vehicle with an approximate value of $6,350; and
she is liable to pay: (a) the three Local Court orders the subject of the creditor's petition ($160,993.32); and (b) $7,000 in respect of a lump sum costs order made against her and in favour of the applicant by the District Court of New South Wales on 11 July 2024.
The respondent asserted in her affidavit that she has no liabilities other than those mentioned in [15(6)] above. I do not accept that evidence. It is a bare assertion directly contradicted by evidence that she has credit card debts in the order of $5,000 (a matter not disclosed in her affidavit). There is also evidence in one of the (incomplete) bank statements attached to her affidavit that on 4 June 2024 she made a payment of $965.25 to "Tax Office Payments". Further, there is no evidence as to her regular living expenses.
The inadequacy of the respondent's evidence concerning her liabilities is compounded by the approach she has taken in response to the notice to produce by failing to produce documents which one would expect her to have.
The second paragraph of the notice to produce called for bank statements for accounts in the respondent's name for the period since 30 June 2023. No such statements have been produced and no explanation has been provided for the non-production of documents which are obviously relevant to the question of the respondent's solvency. For example, the production of these documents may have thrown light upon: (1) whether the accounts described in the respondent's affidavit is a complete set or whether there are other accounts including accounts in debit; and (2) the existence of other liabilities of the respondent.
The third paragraph of the notice to produce called for the production of income taxation returns and notices of assessment for the last three financial years. No such documents have been produced and no explanation has been provided for their non-production save for an assertion of irrelevance, which I do not accept. Again, these documents are obviously relevant to the question of the respondent's solvency and their non-production informs the assessment of whether the respondent has proven that she is able to pay her debts. In this regard, I do not accept the evidence given by the respondent for the first time in re-examination and as a bare assertion that she does not have a debt to the Australian Taxation Office.
For completeness, I note that the respondent also gave evidence of the existence of a line of credit. Counsel for the respondent indicated that no reliance was placed upon this evidence.
The state of the evidence described above is such that I do not accept the respondent's evidence concerning her debt position and I am not satisfied as to the nature or scale of the debts that the respondent has. It follows that I am not satisfied that she is able to pay her debts within the meaning of s 52(2)(a) of the Act and I am satisfied that the sequestration order should be made.
Had I been persuaded that the respondent is able to pay her debts, then I would have dismissed the petition. Although it remains open to the Court, as the applicant emphasised, to make the sequestration order sought notwithstanding that the respondent is able to pay her debts, it is well-established that the discretion is not usually exercised so as to make a sequestration order against a debtor who is able, but unwilling, to pay their debts: see, e.g., Re Sarina v Council of the Shire of Wollondilly [1980] FCA 175; (1980) 48 FLR 372 at 375 to 376 (Bowen CJ; Sweeney and Lockhart JJ); Francis v Eggleston Mitchell Lawyers Pty Ltd [2014] FCAFC 18 at [50] to [51] (Rares, Flick and Bromberg JJ); Culleton at [40] to [44]; and Shaw v Yarranova Pty Ltd [2017] FCAFC 88; (2017) 252 FCR 167 at 290 to 291 ([105] to [109]) (North, Perry and Charlesworth JJ). The circumstances in which the Court would make a sequestration order against a solvent debtor were described by the Full Court in Culleton as "difficult to imagine" (at [43]).
For the reasons set out above, the orders sought by the applicant should be made.
Counsel for the respondent requested that the operation of the sequestration order be stayed for 48 hours to allow the respondent the opportunity to pay the debt. Such a request is misconceived. The Court does not have power to suspend the operation of a sequestration order: s 37(2) of the Act. In Endresz v Australian Securities and Investments Commission [2014] FCA 1139, Beach J explained at [8] to [11]:
8 It is apparent from the provisions and operation of the Bankruptcy Act 1966 (Cth) (the Act) that it is inapposite to talk of a stay of a sequestration order as such. When a sequestration order is made, it takes immediate and automatic effect by force of the Act. There is an immediate vesting of property in the trustee in bankruptcy. Moreover, after-acquired property of the bankrupt vests as soon as it is acquired. See, generally, Nand v Fuji Xerox Australia Pty Ltd [2014] FCA 757 at [3] per Yates J. It is conceptually incoherent to contemplate a judicial stay order as being available to countermand automatic legislative operation where no question of invalidity is involved.
9 In concept, one can only consider whether there should be a stay of any proceedings or action under a sequestration order, rather than a stay of the order itself. So much is made plain by the language of s 52(3) of the Act which uses the language of "stay all proceedings under a sequestration order". I interpolate at this point that s 52(3) also has a time limit of 21 days. Nevertheless, in the Court's appellate jurisdiction under r 36.08, such a time bar does not limit the Court's power thereunder. A separate source of jurisdiction can be invoked, rather than that applicable under s 52(3).
10 Further, reference should also be made to s 37(2)(a) of the Act, which provides that the Court does not have power to suspend the operation of a sequestration order.
11 In summary, the Court only has power to stay proceedings or action under the sequestration order. The present interlocutory applications do not identify what proceedings or action ought to be stayed and why. They fail in limine on this aspect alone.
In Mehajer v Weston (Trustee), in the matter of Mehajer [2018] FCA 608, Lee J explained at [8]:
Even accepting a diminution in emphasis on the quasi-penal nature of bankruptcy and that the contemporary stigma associated with being a bankrupt is not the same as in earlier times, the serious consequences of bankruptcy should not be ignored; it involves the changing of the status of an insolvent person. It is not an ordinary order, nor is a proceeding in bankruptcy mere inter partes litigation. An order sequestrating the estate of a debtor provides for an immediate vesting of the property of the bankrupt in a trustee and changing the status of the bankrupt. When this is understood, an important matter can be readily appreciated: that it is "conceptually incoherent to contemplate a judicial stay order as being available to countermand" the automatic operation of the Act: Endresz v Australian Securities and Investments Commission [2014] FCA 1139 at [8] per Beach J. It follows, as is reflected in s 37(2) of the Act, that there can be no 'stay' of a sequestration order. This is sufficient to determine the relief sought in prayer 1 of the interim application adversely to Mr Mehajer (and also the associated relief which was expressly sought as ancillary to such a stay). To quote more fully from what Beach J said in Endresz at [8]-[11] ...
See also Ritson v Commissioner of Police (NSW) [2021] FCAFC 208 at [63] to [64] (Allsop CJ, Lee and Downes JJ).
Although the Court does have power, under s 52(3) of the Act, to "stay all proceedings under a sequestration order" once such an order is made, it would not be a proper exercise of such a power to do so in order to provide the debtor an opportunity to pay the debt upon which the petition was based: Day, in the matter of Gould v Gould [2000] FCA 1377 at [7] (Emmett J).
I will make orders in accordance with the orders sought by the applicant.
I certify that the preceding twenty-eight (28) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Goodman.