Burns v AMP Finance Limited

REASONS FOR JUDGMENT 1 On 20 May 2005, Raphael FM made a sequestration order against the estate of John Burns. On the same day, his Honour granted a stay of the order. I do not think anything turns on that. Section 52(3) of the Bankruptcy Act 1966 (Cth) ('the Act') provides that the Court may, if it thinks fit, upon such terms and conditions as it thinks proper, stay all proceedings under sequestration order for a period not exceeding 21 days. It is not entirely clear to me at this stage whether the stay was granted pursuant to s 52(3), or otherwise. 2 The stay was granted up to, and including, 27 May 2005. On that day, the stay was extended to 12 noon, today. Earlier in the day I granted a stay pursuant to s 52(3) up to and including 5 pm today. Earlier today, the appellant filed a notice of appeal from the orders made by Raphael FM on 20 May 2005. He now moves for an order that the sequestration order be stayed until the disposition of the appeal. Putting aside the question of the Court's power to grant the stay sought, I have concluded, for the reasons which I will now state, that no stay should be granted at this point. It is therefore unnecessary to enquire into the question of the Court's power to grant a stay in these circumstances. 3 The ground upon which a stay was sought was that the appellant wishes to arrange for the refinancing of the debt upon which the sequestration order was based. That debt is by way of suretyship, the appellant having given a guarantee in respect of the obligations of Dolroy Pty Limited ('the Company'), to the petitioning creditor, AMP Finance Limited ('the Creditor'). 4 Whether or not the appellant is able to refinance the debt, and perhaps apply for an annulment is not, in my view, a reason for staying a sequestration order. That is particularly so in the absence of any evidence as to the likely prospects of such a refinancing being possible. Alternatively, the appellant says that he should have a stay pending the determination of his appeal, on the basis that, if no stay were granted and he is required to comply with his obligations, for example, to file a statement of affairs under s 54 of the Act and the Trustee in Bankruptcy takes control of his assets, he may be irreparably prejudiced and, even if the appeal were upheld, he would not have the full benefit of the appeal. 5 In so far as that is the basis for the stay, it is necessary to examine the grounds of appeal in order to determine whether there is some rational prospect of success. I would also have expected that there be evidence, in support of such an application, as to the financial position of the appellant. There is, however, no such evidence, nor was there any such evidence before Raphael FM. 6 The first ground of appeal is that the bankruptcy notice, failure to comply with which gave rise to an act of bankruptcy, was a nullity because it contained an error. I have to confess I have some difficulty in comprehending the argument. The order made by the Supreme Court of New South Wales, on which the bankruptcy notice is based, is set out in the reasons of the primary judge. The orders were that, a proceeding that had been commenced by the appellant and the Company, together with a second company, O'Malley's Aquariums Pty Ltd, against the Creditor, be dismissed, there be judgment for the Creditor. However, the Creditor had filed a cross-claim in the proceeding against the appellant, the Company and O'Malley's Aquariums Pty Ltd. 7 The Supreme Court ordered that there be judgment for the Creditor on the cross-claim in the sum of $5,044,483.39 and that the cross-defendants pay the Creditor's costs from 1 March 2004 on an indemnity basis. The complaint is that the form of the order does not specify, in terms, that the judgment for the Creditor, is against the cross-defendants, namely, the appellant, the Company and O'Malley's Aquariums Pty Ltd. It was not suggested that the order of the Supreme Court was intended to be anything other than judgment against all three cross-defendants, including the appellant. 8 It is clear enough, in my view, that that is the effect of the order of the Supreme Court, assuming that the cross-claim made a claim against all three of the cross-defendants. It was not suggested that the bankruptcy notice served on the appellant did not otherwise accord with the form prescribed by the regulations. Nor was it suggested that there was any irregularity or defect in the bankruptcy notice as such. That is to say, it was not suggested that the bankruptcy notice misstated the amount for which judgment was entered in the Supreme Court. 9 In any event, it appears that the primary judge concluded that it was not open to the appellant to raise that matter, since there had previously been a proceeding involving the validity of the bankruptcy notice, in which the appellant had been unsuccessful. It appears that the Creditor relied on the Anshun principle (see Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589) as an answer to that claim. 10 The next ground is that it was suggested that the Creditor had brought the bankruptcy proceeding for a collateral purpose and that the bankruptcy proceeding amounted to an abuse of the Court's process. The ground refers to the bringing and maintaining of the proceeding, although, in the course of argument in support of the application for a stay, the appellant eschewed any reliance upon the bringing of the bankruptcy proceeding, but rather suggested that there was an abuse of process by maintaining the proceeding. 11 The argument was that the Creditor had declined to agree to a further adjournment of the hearing of the petition unless the appellant arranged for the Company to provide further security to the Creditor, in respect of a parcel of land owned by the Company. That does not appear to me to be capable of constituting a collateral or improper purpose. The appellant was asking for an indulgence. The Creditor indicated the terms upon which it might be prepared to grant an indulgence. The appellant was not able to satisfy those terms. There was nothing improper in declining to agree to a further adjournment if those terms could not be satisfied. I do not consider there is any substance in that ground. 12 Next, there is a complaint that the primary judge erred in not allowing the appellant an opportunity to lead proper evidence of a valuation of the security given to the Creditor by the Company. It appears that the primary judge was asked to accept evidence in the form of a written valuation. His Honour rejected the evidence in the absence of the calling of the valuer for the purposes of cross-examination. 13 That, as such, is not one of the grounds of appeal. It appears to me that there could be no complaint about the exercise of a discretion to reject the tender of a written valuation without some evidence from the valuer. The ground is, rather, that the appellant was not given an adjournment, in effect, to rectify the inadequacy of his evidence. There is no suggestion that the appellant was in some way misled into thinking that his evidence would be accepted. It is relevant, in that regard, that the hearing first began on 3 May 2005 and was adjourned until 12 May 2005. 14 It is more relevant that the proceeding was commenced in 2004. That is to say, the appellant had had ample opportunity to adduce evidence in admissible form. I am not persuaded that there was any error, or even any arguable error, on the part of the primary judge in declining to grant a further adjournment to enable the appellant to adduce evidence in admissible form. 15 The reason why the appellant sought to adduce such evidence is that he sought the exercise of discretion on the part of the Federal Magistrates Court, pursuant to s 52(2)(b) of the Act. Section 52(2)(b) relevantly provides that, if the Court is satisfied by a debtor that, for sufficient cause, a sequestration order ought not to be made, it may dismiss a creditor's petition. The argument was that the principal debtor, namely the Company, whose debt was guaranteed by the appellant, had adequate assets to enable it to refinance the indebtedness due to the Creditor, and that the appellant required further time to enable him to exercise his powers, as the only director of the Company, to arrange such further finance. 16 However, it was common ground that the Company had been in default in the discharge of its indebtedness to the Creditor for some years. Similarly, of course, the appellant was in default under his guarantee. There was not adequate evidence to explain precisely how and when any refinancing might occur. As I have said, there was no evidence as to the financial position of the appellant before the Federal Magistrates Court. Nor, as I understand the position, was there any evidence as to the financial position of the Company to indicate whether or not it would ever be in a position to meet the debt due to the Creditor. 17 In the circumstances, even if there had been evidence as to the value of the security, that of itself would not necessarily have led to a conclusion that there was sufficient cause for not making a sequestration order, in circumstances where the principal debtor, namely the Company, and the appellant were in default of their contractual obligations for a very considerable period of time. There is no reason why, in my view, there would be sufficient cause for refusing to make a sequestration order. 18 I am not persuaded that there is any prospect of success on the appeal on the grounds that are presently specified. In those circumstances I do not consider there is any utility in granting a stay.