Donovan v Brown

Adjournment 3 The petition was filed on 17 December 2020. On 18 January 2021 Registrar Benter gave the applicants leave to amend it and to amend the supporting affidavit. They filed an amended creditors' petition on 20 January 2021; the amendment was necessary because they had not been able to serve the original petition on Mr Brown within five days before the first hearing of the petition, as required by r 4.05 of the Federal Court (Bankruptcy) Rules 2016 (Cth). 4 On 22 February 2021 the registrar adjourned the petition to 15 March 2021 and ordered Mr Brown to file and serve a notice of appearance and notice stating grounds of opposition to the petition by 26 February 2021. 5 Mr Brown entered an appearance by his then lawyer, Joshua Hunt of HopgoodGanim, on 26 February 2021 and filed a notice stating grounds of opposition to the petition. In broad terms the grounds were that he was solvent and could pay the judgment debt. The affidavit he affirmed and filed in support of the notice on the same day can be described as a holding affidavit which said that because of unspecified 'complexities in my current financial situation', he could not at that time put on evidence supporting the grounds in the opposition notice, but that he expected to be in a position to do so by 5 March 2021. 6 On 9 March 2021 Mr Brown affirmed a further affidavit which contained evidence concerning his financial position, which I will describe later. On 15 March 2021 the registrar adjourned the petition to 29 March 2021. On 26 March 2021 he referred the petition to a judge and vacated the hearing of 29 March. 7 The matter thus came into my docket and there was a case management hearing on 20 April 2021 at which Mr Brown was represented by a solicitor from HopgoodGanim. Mr Hunt had on 16 April 2021 filed a notice of intention to cease acting for Mr Brown within seven days. Nevertheless, at the case management hearing on 20 April 2021 Mr Brown was represented by a solicitor from HopgoodGanim because the seven day period in the notice of intention to cease acting had not then expired. 8 At the case management hearing on 20 April 2021 the petition was set down for hearing today. Mr Hunt filed a notice of ceasing to act on 27 April 2021. Mr Brown has not since then filed any notice of address for service (in default of the requirement to do so in r 4.05(2) of the Federal Court Rules 2011 (Cth)), and no lawyer has filed a notice of acting on his behalf. 9 Against that procedural background, Mr Brown sought an adjournment of the petition listed for hearing today. He initially sought only a seven day adjournment, but in submissions at the hearing today he sought to extend the time for the adjournment until after 25 May 2021. The potential relevance of that date is that on 25 March 2021, in a different proceeding, I appointed receivers to all of Mr Brown's assets. The appointment of those receivers expires on 25 May 2021 at which time it is expected they will provide a report to the court. Mr Brown sought an adjournment until after that date because he said the report is likely to support his claims that he is solvent. 10 The request for an adjournment was supported by an affidavit which Mr Brown affirmed on 7 May 2021, that is, last Friday. In it, he says that when he became aware that HopgoodGanim would cease to represent him, 'I took time to gain advice on whom a suitable lawyer or firm would be'. He says he 'reached out' to a person called John at MGM O'Connor Lawyers. He does not say when he contacted John, but from other dates given in the affidavit it appears to have been shortly before 23 April 2021. John organised a meeting between Mr Brown and a partner at MGM O'Connor which took place on 28 April 2021. They agreed that the firm would act for Mr Brown if he provided a specified sum of money for their fees to be held on trust, and they rendered an invoice to Mr Brown for that sum. Mr Brown's affidavit says he was trying to get 'a backer' to provide those funds and the affidavit appears to say that due to 'the difficult circumstances and the media frenzy of the past week', that was not done until 6 May 2021. The affidavit says that on that day 'a supporting backer' had 'been acquired' who 'will pay this money on trust for me, confidentially'. 11 On the afternoon of last Friday, 7 May 2021, MGM O'Connor sent correspondence to my Chambers saying that they were aware of Mr Brown's affidavit of that day and confirming that Mr Brown had approached them. The correspondence confirmed that they would file notices of acting 'on suitable arrangements being made by him to retain us', implying that at that point, no such suitable arrangements had been made. 12 In the event no notice of acting has been filed, and Mr Brown has appeared at the hearing today on his own behalf unrepresented by MGM O'Connor or any other lawyer, Mr Brown stated from the bar table that he expects the funds from the backer to be paid by tomorrow, and on that basis sought the further adjournment. 13 However, I do not accept that that information, even if I permit it to stand as evidence from the bar table, or Mr Brown's affidavit of last Friday, provide sufficient reason for an adjournment. The petition was filed in December last year and, for various reasons, has been adjourned three times since then. Mr Brown has had 20 days' notice of the current hearing and there is no good explanation in his latest affidavit as to why he was not able to secure replacement lawyers well before today. Even allowing for what he calls 'the media frenzy', he must have been aware of the urgency of obtaining alternative representation as soon as possible and there is no explanation of how media attention has inhibited him from doing so. 14 Most materially, his indication that he would be able to provide the necessary funds to secure that representation has not materialised. His further assertion today that the funds will be received tomorrow adds very little to that previous evidence, and adds no real support to any expectation that the funds will materialise any time soon. 15 It is notable that Mr Brown has not named the 'backer' or given any explanation of the circumstances which have led the backer, if there is one, to fail to provide the funds by today. Both Mr Brown and any backer must have been aware of the urgency of the funds materialising by the time of this hearing so that Mr Brown could at least be represented by a lawyer at the hearing who could apply, perhaps with more foundation than presently exists, for an adjournment. Nevertheless, the funds have not been provided. 16 Mr Brown also referred in submissions to HopgoodGanim, his previous lawyers, having had a conflict of interest and providing, according to him, advice which was more in their interests than in his. However, the nature and the extent of that alleged conflict, and its effect on his ability to obtain any further evidence in support of his notice of opposition, have not been explained. 17 I am not satisfied that any further adjournment will make any difference to the position, and I am not satisfied that any funds from the alleged backer are likely to be paid to MGM O'Connor or any other lawyers any time soon. For those reasons, I refused to adjourn the petition.

Grounds of opposition 18 Mr Brown's notice stating his grounds of opposition to the petition stated that he had sufficient assets to satisfy the debt to the applicants, that the debt would be paid upon Mr Brown 'obtaining clear access to [his] assets' and that he was prepared to enter into an agreement to pay by instalments or to postpone the enforcement of the debt. 19 The notice was supported by the affidavit of Mr Brown affirmed 9 March 2021 which I have already mentioned. In the affidavit Mr Brown asked for an adjournment of the petition 'to provide me with more time to receive legal and financial advice with respect to the release of personal funds for payment of debts and amounts owing to the Applications [sic] in this action'. The affidavit deposed to steps that Mr Brown had taken to retain HopgoodGanim to act on his behalf in relation to the petition, including to advise him on how to prove that he is capable of paying all debts owed to the applicants. It also deposed to discussions he had with Mr Hunt about the progress of releasing funds held with National Australian Bank Limited (NAB). 20 According to the affidavit, Mr Brown has sufficient funds in an account with NAB to pay the debts owing to the applicants. The affidavit annexed what it said was a 'certified wealth report' for the account dated 8 March 2021. The annexure bears a banner or letterhead for 'nabtrade', which appears to be a trading name for Wealthhub Securities Limited. It is headed 'Total wealth report' for Mr Brown and has under an item for 'asset allocation' against Mr Brown's full name a 'Cash balance' showing a very large sum of money which, if Mr Brown were able to access it, would permit him to pay the debt which is the subject of the petition, many times over (assuming that amount is not needed for other liabilities). According to the affidavit, the document was stamped by a NAB bank manager at the bank's Bull Creek branch. The stamp appearing on it names the branch and has unexplained numbers on it. Neither on the stamp nor anywhere else on the document is anything said to be certified, and the manager has not signed or initialled the stamp or the document. 21 Mr Brown deposed that the funds in the account 'are currently held in suspension pending the conclusion of the National Australia Banks' [sic] Know Your Customer (KYC) process'. The affidavit says that he had been told by unnamed NAB representatives that at the conclusion of that process, all funds held in 'my Personal Account' (a term that is not defined in the affidavit) will be transferred into an account in his control. There is also evidence that Mr Brown has opened an account in the name of a company controlled by him into which the funds will be transferred. Why his 'Personal Account' is not already in his control, or at least will be when the KYC process is completed, and why there is any need to transfer funds, are not explained. 22 The affidavit annexes what appears to be an email from Mr Brown to a banker at NAB attaching a declaration answering various questions which are apparently part of the KYC process. There is also a letter of the same date from HopgoodGanim indicating their willingness to help the NAB 'facilitate the banking relationship between NAB and Chris Brown'. There is what appears to be an email from the NAB banker to Mr Brown saying that he had sent the materials through to 'my KYC team to be reviewed and for them to complete their processes' and saying that the NAB banker would let him know how it goes. The email also says 'I've seen that the funds from NAB Trade haven't made it into the account yet. Is there anything you wanted me to do to try and escalate this?'. This statement, including what account is being referred to, is not explained in the affidavit, nor is there any evidence of whether Mr Brown or HopgoodGanim responded to the question. 23 In the affidavit Mr Brown deposed to his belief that once the account in the name of the company is completed and 'the onboarding process is complete (whereby funds are transferred from my Personal Account to the Company Account), that I will receive access to the funds in the Company Account and will be able to pay the amounts owing to the Applicants in this action'. He believed and anticipated that prior to 5 April 2021 he would have unfettered access to the funds in the Company Account and would be capable of paying the amounts owing to the applicants, and sought an adjournment until that date. The affidavit contains no other evidence about Mr Brown's assets or liabilities. 24 In Kitay, in the matter of Frigger (No 2) [2018] FCA 1032 at [107], Colvin J summarised the principles that apply when a petition is opposed on the ground of the debtor's solvency as follows: Section 52(2) of the Bankruptcy Act provides that if a Court is satisfied by the debtor that he or she is able to pay his or her debts then the Court may dismiss the petition. It is for the debtor to satisfy the court as to the ability to pay debts: Sanders v Knudsen & Yates t/as Hargreaves Practice [2004] FCAFC 305 at [14]. It must be demonstrated that there are assets that are available to be realised and that they are capable of ready realisation: Australia & New Zealand Banking Group Ltd v Foyster [2000] FCA 400 at [17]. Where it is shown that there are assets to which a judgment creditor might readily resort under civil judgment enforcement proceedings then it is those processes which should be followed, not sequestration. 25 The only evidence as to Mr Brown's ability to realise assets capable of paying his debts is his affidavit of 9 March 2021. That affidavit contains nothing that would permit the court to conclude that his assets exceed his liabilities. It deposes to one large asset and apparent efforts to make it readily realisable, by access to funds. But even if it is assumed that the asset exists, there is no detail on what will be required to make it realisable or when that will occur. All there is, in the end, is an assertion by Mr Brown of a belief that the funds would be available by 5 April 2021. That belief was not supported by any firm evidence and Mr Brown has provided no further evidence of any developments after that time which would give the court confidence that the funds were in existence, available and readily realisable. 26 I do not consider that the affidavit should be characterised as somehow incomplete, with an intention for further and more detailed evidence to be provided. As at 9 March 2021, this petition was listed for a final hearing before the registrar six days later on 15 March 2021. There was no indication at that point that the petition was to be further adjourned. It can be inferred that the affidavit of 9 March 2021 prepared on Mr Brown's behalf by the lawyers representing him at the time was the best evidence he could put forward in support of the notice of opposition. It does not come close to establishing that Mr Brown has readily realisable assets to pay the judgment debts. 27 It is important to acknowledge in this regard that on 18 March 2021, the court made freezing orders on an ex parte basis in a different proceeding substantially freezing all of Mr Brown's assets. And, as I have already mentioned, the court appointed receivers to all of those assets on 25 March 2021. Of course, both of those developments are likely to have had a drastic effect on Mr Brown's ability to gain immediate access to his assets, and that effect is ongoing. But the onus of establishing that Mr Brown is able to pay his debts and that he has assets that are available to be readily realised is on him. The obvious, undoubted, and substantial impediments to the realisation of any assets that are presented by the freezing orders and the appointment of receivers do not prove the negative of those impediments. That is, while they might explain a failure to access assets after those orders were made, they do not establish that there was any ability to access the necessary assets before that date, or that there will be any such ability once those impediments are removed, if they are removed. 28 Mr Brown suggested from the bar table that the final report of the receivers may provide evidence of his solvency, but he has not put anything into evidence in this proceeding which suggests that that may be the case. The affidavit of 9 March 2021 is notable for its focus on one alleged asset only and apparent attempts to realise that asset without any reference being made to the existence of other assets or the existence of other liabilities. In short, there has been no disclosure of Mr Brown's full financial position. He has not discharged his onus of proof in support of the grounds of opposition and I conclude that those grounds have not been made out.

Formal irregularities 29 The next issue which needs to be determined is a number of formal irregularities in the bankruptcy petition and supporting documents and in steps taken in the prosecution of the bankruptcy petition. 30 Section 52(1) of the Bankruptcy Act 1966 (Cth) provides that: 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. 31 There is an affidavit by the applicants verifying the matters set out in the amended petition, namely the fact of the debt, that the applicants do not hold security over Mr Brown's assets, that he was in Australia and ordinarily resident in Australia when the act of bankruptcy occurred, and that on 27 November 2020 he committed that act of bankruptcy by failing to pay the debt. There are affidavits establishing that the petition was served on Mr Brown and that the debt is still owing. 32 The applicants have, however, properly drawn the court's attention to a number of defects in the documents filed with the court. Section 306(1) of the Bankruptcy Act provides that proceedings under the Act 'are not invalidated by a formal defect or an irregularity, unless the court before which the objection on that ground is made is of opinion that substantial injustice has been caused by the defect or irregularity and that the injustice cannot be remedied by an order of that court'. 33 When asked to comment on the irregularities which had been drawn to the court's attention in a letter to the court which Mr Brown acknowledges he also received, Mr Brown said that the whole process has been something of a 'shambles' and claimed that there was only one occasion on which he had been personally served with any documents. I will take that to be him making objection to the defects which I am about to describe. 34 First, the affidavit verifying the amended petition is incorrectly dated 19 January 2020 in its opening line. But it is correctly dated 19 January 2021 in the jurat. The incorrect date is clearly a slip and a formal defect. Second, the correct date, 19 January 2021, on which the affidavit was sworn is the day before the date which appears on the amended petition which it purports to verify, namely 20 January 2021. If that is a defect, it is a formal defect only. What it means is that the affidavit, when sworn by the petitioning creditors, must have verified a petition which was, at that stage, unsigned. But the petition and affidavit are in the form of a single document. That is, they are in the form often taken of the affidavit being appended to the petition itself, so that they are both part of the same document. The relevance of this is that it may be inferred that when the deponents swore the affidavit, they had before them and were, in fact, verifying, the contents of the petition, albeit it was a petition which was at that time unsigned. The substantive requirement of s 52(1) is proof on affidavit of the matters stated in the petition. In view of the form in which the affidavit and petition take, there can be no doubt that the affidavit verified the things said in the petition, whether the petition was at that stage signed or not. 35 Third, the petition is signed by 'Hammond Legal', not the individual lawyer named in the petition as the applicant's lawyer, as required by r 2.15(1) of the Federal Court Rules. In ANZ Banking Group Ltd v Elferkh [1999] FCA 1049; (1999) 92 FCR 195 at [23], Emmett J held that a failure to sign a petition at all was a formal defect only. It must follow that a failure to comply with r 2.15(1) as to the manner of signature (if that is what has occurred) is a formal defect too. 36 Fourth, the amount of the judgment debt stated in the amended petition does not include an amount of post-judgment interest which has accrued, in the sum of $497.82. Section 47(1A) of the Bankruptcy Act requires the petition to be in the form prescribed by the rules of court. Rule 4.02 of the Federal Court (Bankruptcy) Rules prescribes the form. That form requires the petition to state the amount which the debtor owes to the creditor. It follows that this petition does not comply with that, as it understates the amount owing by omitting the interest. 37 In Kleinwort Benson Australia Ltd v Crowl (1988) 165 CLR 71 at 80-81, however, a majority of the High Court held that a failure to state the amount of interest in a bankruptcy notice was a formal defect or irregularity, although it could constitute a substantive defect if the understatement is objectively capable of misleading the debtor as to what is necessary for compliance with the bankruptcy notice. The approach to assessing defects in a bankruptcy notice is stringent, because it performs the important function of informing the debtor what he or she must do to avoid committing an act of bankruptcy: Metledge v Hopkins [2020] FCA 561 at [4], [7]; Kleinwort at 81 (Deane J, in dissent but not on this point). A creditor's petition performs a different function, namely that of satisfying the court that the court's jurisdiction under s 43(1) of the Bankruptcy Act to make a sequestration order has been enlivened. The court will be satisfied of that even if the amount shown in the petition understates the judgment debt by omitting interest. If that is only a formal defect in a bankruptcy notice, it must be a formal defect in a petition too. 38 Fifth, there are other minor defects in the petition: the postcode has been omitted from Mr Brown's address, his occupation has been left out and the petition states a business name for him which is, in fact, a company name that is not used as a business name. These defects are formal only. 39 No reason has been advanced to think that any of these defects have caused substantial injustice, so I am satisfied that s 306 of the Bankruptcy Act means that they do not invalidate these proceedings. While I acknowledge Mr Brown's submission that the process has been 'a bit of a shambles' and while the number of defects which the court has had to address in these reasons might rather tend to support that submission, the fact remains that with one exception I am about to come to, service on him of all of the necessary documents, including the crucial bankruptcy notice in which no defect has been alleged, has been proved to the satisfaction of the court. The matters set out in the petition including the existence of the debt and the committing of the act of bankruptcy, have all been established. Nothing arises on the evidence to suggest that any of these defects, regrettably numerous as they have been, have caused substantial injustice. 40 The exception to which I said I would come is that r 4.05(d) of the Federal Court (Bankruptcy) Rules requires that a copy of any consent to act as trustee of the debtor's estate is served on the debtor at least five days before the hearing of the petition. There is an affidavit showing that the consent was sent to Mr Brown by email. But he has not filed a notice of address for service and has not filed any notice authorising service by electronic communication as required by r 10.31(d) of the Federal Court Rules to permit service by email. However the email address used is one which Mr Brown has used to communicate with the court and which he has specifically confirmed to my Chambers could be used for that purpose. I am satisfied that sending the consent to act as trustee to him by email is likely to have brought the consent to his attention, and that this is a case where I should exercise the discretion under r 1.34 of the Federal Court Rules to dispense with the requirement that it be served in any other way.

Conclusion 41 The result is that the formal requirements for a sequestration order have been met. No reason having been given why the court should not exercise its discretion to make the order, it will be made. I certify that the preceding forty-one (41) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Jackson.