Eykamp v Deputy Commissioner of Taxation

REASONS FOR JUDGMENT BUCHANAN J: 1 On 8 October 2009 the Federal Magistrates Court of Australia ("the FMCA") made a sequestration order against the estate of the appellant (Mrs Eykamp) (Deputy Commissioner of Taxation v Eykamp [2009] FMCA 989). It is against that order that the present appeal has been brought. 2 The sequestration order was made on the application of the respondent to the present proceedings. The sequestration order responded to a creditor's petition which was based upon an undisputed judgment obtained on 23 December 2004 for $628,673.97. The FMCA found that, by the time of the hearing before it, the amount for which Mrs Eykamp was liable pursuant to the judgment was at least $900,000. This finding gave credit to an argument put by Mrs Eykamp that the full amount of interest claimed by the respondent was not available to it. The respondent claimed that the debt, at that time, was $1,005,285.11. I shall proceed, as the respondent did on the present appeal, on the assumption that the unchallenged debt is for a sum not less than $900,000. 3 In the proceedings before the FMCA Mrs Eykamp argued that she was solvent. The onus of showing that she was solvent fell upon Mrs Eykamp. The test for solvency is set out in s 5 of the Bankruptcy Act 1966 (Cth) ("the Act") in the following terms: 5(2) A person is solvent if, and only if, the person is able to pay all the person's debts, as and when they become due and payable. 5(3) A person who is not solvent is insolvent. 4 Mrs Eykamp owns a property known as "Ambervale" which the FMCA was informed had been on the market for sale for most of the period from April 2008. She has a half share in a property called "Nibiru" with her former husband whose estate was then bankrupt. At the time of the proceedings before the FMCA the trustee of Mrs Eykamp's former husband's estate had not agreed to the sale of Nibiru. 5 In the absence of any evidence that Mrs Eykamp was in a position where she could readily realise sufficient monies from Ambervale and Nibiru to meet her debt to the respondent, the fact that the value of her interest in those properties appeared to exceed the amount of the debt did not provide a reason to conclude that a sequestration order should not be made. I accept, as the respondent submitted, that the authorities show that establishing solvency involves more than a mechanical comparison between the extent of the liability upon which a creditor relies and the apparent value of assets possessed by a debtor, should they be able to be realised (see, for example, Quick v Stoland Pty Ltd (1998) 87 FCR 371 per Emmett J at 380; Whitton as Trustee of Estate of Rose v Regis Towers Real Estate Pty Ltd (in admin) (2007) 161 FCR 20 ("Whitton") at [27]). 6 However, Mrs Eykamp, with the co-operation and support of her son, Mr Nicholas Eykamp, proposed some arrangements which were intended, in a less direct fashion, to provide a sufficient source of funds to pay her debts. 7 Under an earlier definition in the Act considered in Sandell v Porter (1966) 115 CLR 666 it was necessary for a debtor to be able to pay debts as they fell due out of the debtor's own money. Such monies extended to those capable of being procured by sale, by mortgage or pledge of assets of the debtor's within a relatively short time. A more flexible position now obtains. I note that in International Alpaca Management Pty Ltd v Ensor [1999] FCA 72 Katz J favoured the view that the necessity to pay a debt from a person's own money continued to be an important element in the scheme established under the Act (see e.g. s 124(3)(a) of the Act). However, with respect, so far as it concerns consideration of whether a person is, or is not, solvent, I prefer the view taken by Palmer J in Lewis v Doran (2004) 184 FLR 454 at [116] (see on appeal Lewis v Doran (2005) 219 ALR 555 at [109] - [112]) to which I subscribed, with the agreement of Marshall and Tracey JJ, in Whitton at [34]-[38]. Accordingly it would not be impermissible to pay regard to the fact that Mrs Eykamp could raise sufficient money to pay the debt, whether or not that was the direct result of sale, mortgage or pledge of her assets. However, whatever mechanism is employed to secure the necessary funds, and satisfy the Court that it provides adequate evidence of solvency, it remains necessary that it produce results within a realistic time frame (Sandell v Porter at 670, Hall v Poolman [2007] NSWSC 1330; 65 ACSR 123 at [187]). 8 The arrangements proposed by Mr Nicholas Eykamp were complicated and depended upon a number of contingencies being fulfilled. Inevitably, if all went well, it would take some time to achieve the result that sufficient funds were available to Mrs Eykamp. The FMCA was not satisfied, on the evidence, that sufficient funds were likely to be forthcoming from the arrangements. As it happens, they were not forthcoming at that time or at any time prior to the hearing of the present appeal. Sufficient funds are still not available. Mrs Eykamp wished to provide evidence on the appeal of altered proposals to achieve that end but, as will be explained shortly, that evidence was not admitted. 9 There was a further, practical, issue which confronted the FMCA. The creditor's petition had been filed on 16 October 2007. A creditor's petition lapses after 12 months unless the period is extended (s 52(4) of the Act). A creditor's petition may not be extended longer than 24 months (s 52(5) of the Act). If a further opportunity was given to Mrs Eykamp by the FMCA to make arrangements to pay the debt, which was the subject of judgment on 23 December 2004, the creditor's petition would have lapsed on 15 October 2009. It would be as though it had been dismissed by the FMCA. That practical difficulty still arises on the present appeal. In order to succeed, Mrs Eykamp must persuade the Court not only to set aside the sequestration order but to conclude that the creditor's petition to which it responded should have been allowed to lapse by the FMCA. 10 At the hearing of the appeal Mr Tregenza applied first to adjourn the hearing of the appeal to permit further steps to be taken by Mrs Eykamp to try to reach an accommodation with her creditors. The application was opposed by the respondent and by the trustee of Mrs Eykamp's estate who was separately represented. I declined to adjourn the hearing of the appeal. A number of extensions of time have been granted to Mrs Eykamp at directions hearings since the appeal was instituted. On the last occasion (four months ago) I made it clear that the hearing of the appeal would not lightly be further delayed. Furthermore, it did not appear to me that the matters which Mrs Eykamp wished time to explore could bear upon the issues which arose on the appeal. I declined to grant an adjournment and the appeal continued. 11 In support of his submissions on the appeal, Mr Tregenza then sought to adduce further evidence pursuant to s 27 of the Federal Court of Australia Act 1976 (Cth). The proposed evidence consisted of a recent affidavit sworn by Mrs Eykamp, an affidavit sworn by her son Mr Nicholas Eykamp shortly after the judgment of the FMCA and a copy of documents referred to by Mrs Eykamp in her affidavit - a contract for the sale of Nibiru (signed by the proposed parties but not exchanged) and a deed of family arrangement to which the parties were Mrs Eykamp, her former husband, Mr Lynn Eykamp, and Mr Nicholas Eykamp. For reasons given at the hearing of the appeal I declined to grant leave to Mrs Eykamp to rely on the proposed evidence. Briefly, the reason for that ruling was that the evidence did not relate to the question which was before the FMCA; namely - was Mrs Eykamp solvent at the time the sequestration order was made. That question is not answered by enquiring whether Mrs Eykamp was solvent at the date the appeal was heard. The discretion pursuant to s 27 to admit fresh evidence may be used to assist in the identification of error but that task does not involve a simple retrial of the issues at first instance on further evidence (see Freeman v National Australia Bank Ltd [2003] FCAFC 200 at [65]-[67], citing CDJ v VAJ (1998) 197 CLR 172 and Guss v Johnstone [2000] FCA 1455). Still less does an appeal involve a trial of effectively different issues. 12 In the present appeal, the central question is whether the sequestration order should have been made when it was. In my view the FMCA was not in error to make the sequestration order. Mrs Eykamp had not established that she was solvent. There was no error of analysis in that conclusion. She was not in a position to pay her debts at that time. Nor would she have been able to put herself into a position to do so within a reasonable period of time. She has not, in fact, done so in the nine months since the sequestration order was made. 13 Having regard to the nature of the material which was intended to be relied upon as fresh evidence, had I admitted it into evidence it could not have secured a different result on the appeal. Even if the matter fell to be assessed afresh, and without the need to find error by the FMCA, that material could not have established that Mrs Eykamp was solvent at the time the appeal was heard. 14 The appeal is dismissed with costs. The respondent's costs are to be taxed and paid from Mrs Eykamp's bankrupt estate. I certify that the preceding fourteen (14) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Buchanan.