Was Ms Francis solvent on 25 July 2011?
32 Ms Francis argued, with some force, that as his Honour had accepted that, as at the date of the sequestration order, her unencumbered property was worth approximately $500,000 and that the quantum of her debts due to other lawyers was about $21,000, any conclusion that she was insolvent could not be justified. She contended that, if these be the only facts to be taken into account, she had the ability to approach a bank or a lending institution to obtain a loan on the security of the property to repay the debts and, so, was solvent at the time the sequestration order was made.
33 Ms Francis' counsel and solicitors had put substantial affidavit evidence to the primary judge and made detailed written submissions that asserted that the value of her real property was in excess of $650,000 and that she had few liabilities, including "a small debt of $6,987.60 owed to Lewis Holdway" and "relevant tax liabilities … in the sum of $26,875.63". Those submissions also accepted that Ms Francis had a number of other liabilities, but those other liabilities can presently be left to one side, as they were by his Honour. Ms Francis' counsel's written submissions below then contended that her two main liabilities (including that owed to Mr Bunnett) could not be "satisfactorily estimated on any admissible evidence". If included, they would have increased her liabilities by about $200,000. Ms Francis' counsel's submissions also referred to regular distributions made to her from a discretionary trust and concluded by saying that her "assets more than outweigh her liabilities and she receives sufficient ad hoc income to pay her debts".
34 The primary judge rejected Ms Francis' contention that she was solvent. His Honour reasoned as follows:
[20] Ms Francis contends that as at 25 July 2011 she was solvent. She points to her position, at that time, as the sole registered proprietor of a property in West Melbourne, worth approximately $500,000. The property was unencumbered, save for a City West Water caveat of no great consequence. Ms Francis gave affidavit evidence of her preparedness to use her property as security for a loan to pay her debts should she need to do so. She claims that the income she received from a discretionary trust was usually sufficient for her to pay her debts.
[21] There is no evidence before the Court of the ability of Ms Francis to realise her property within a relatively short time. This is a critical issue when considering the question of solvency. A mere surplus of assets over liabilities as at 25 July 2011 does not mean that she was solvent at the time.
[22] The authorities stemming from Sandell v Porter (1966) 115 CLR 666 reveal that solvency is to be adjudged by the ability of the debtor to realise assets "within a relatively short time" and by reference to the broader question as to whether the debtor can pay debts as and when they become due and payable. There is no evidence of Ms Francis's ability to pay the debt arising out of the order of Master Wood or the not insignificant sums payable to other solicitors she has engaged to act on her behalf. In this regard, I do not take into account the alleged debt to a Mr Christopher Bunnett which relates to cost orders post-dating the sequestration order.
[23] As at 25 July 2011, it is not clear that Ms Francis would have been in a position to realise her West Melbourne property within a relatively short time. Consequently, I am not satisfied that, had he been apprised of the true facts as to Ms Francis's liabilities and assets, Caporale R would have been bound not to make the sequestration order.
The primary judge's reference to the "not insignificant sums payable to other solicitors" appears to have been directed at the following debts, totalling $21,395.80 that the trustees had admitted to proof, namely: $11,372.20 payable to Shayne Daley & Associates, $3,036.00 payable to Foster Nicholson Jones Lawyers and $6,987.60 payable to Lewis Holdway Lawyers.
35 Importantly, Ms Francis' counsel did not expressly advance to the primary judge any submissions as to her ability to use her property or the likelihood of her future receipt of distributions from the discretionary trust as security for any loan that might enable her to pay her debts as and when they fell due, or at all. There was evidence that Ms Francis had applied for a loan of $520,000 on 22 November 2012 on the security of her property in order to obtain the annulment of her bankruptcy. The prospective lender had responded on 27 November 2012 offering such a loan at the rate of 20% interest per annum and an initial fee of $40,000 on a number of conditions, including that the real property have a minimum valuation of $750,000. There was no evidence that Ms Francis could, or had tried to, satisfy the conditions of that offer and it was not referred to by her counsel in argument at trial in support of any contention that she was solvent at any time, including at the date of the sequestration order.
36 The primary judge used the word "realise" in relation to Ms Francis' ability to use her assets when discussing her solvency in [21]-[23] of his reasons quoted above. It is likely that his Honour did so in the same way as Barwick CJ had discussed the concept of a debtor realising his or her assets in Sandell v Potter (1966) 115 CLR 666 at 670-671, namely, in the sense of the sale, mortgage or pledge of the debtor's assets to raise money with which to pay his or her debts. The Chief Justice said, in his well-known judgment:
An essential step in making out that a payment is a preference within s. 95 is to establish by evidence to the satisfaction of the Court that the payer was at the time of the payment insolvent. Insolvency is expressed in s. 95 as an inability to pay debts as they fall due out of the debtor's own money. But the debtor's own moneys are not limited to his cash resources immediately available. They extend to moneys which he can procure by realization by sale or by mortgage or pledge of his assets within a relatively short time-relative to the nature and amount of the debts and to the circumstances, including the nature of the business, of the debtor. The conclusion of insolvency ought to be clear from a consideration of the debtor's financial position in its entirety and generally speaking ought not to be drawn simply from evidence of a temporary lack of liquidity. It is the debtor's inability, utilizing such cash resources as he has or can command through the use of his assets, to meet his debts as they fall due which indicates insolvency. Whether that state of his affairs has arrived is a question for the Court and not one as to which expert evidence may be given in terms though no doubt experts may speak as to the likelihood of any of the debtor's assets or capacities yielding ready cash in sufficient time to meet the debts as they fall due."
(Emphasis added).
37 The West Melbourne property was unoccupied but in a state of disrepair. There was no evidence as to whether a lender at 25 July 2011 would have been prepared to advance a sum of money sufficient to meet her liabilities that were then due on the security of that property or otherwise and whether Ms Francis could, or would, have accepted any terms for such a loan as at the date of her bankruptcy. And, as his Honour noted, by then she had incurred not insignificant liabilities that she had not met when they had been due.
38 The primary judge concluded that he was not satisfied that, had the registrar been apprised of the true facts as to Ms Francis's liabilities and assets, he would have been bound not to make the sequestration order.
39 Ms Francis has not shown that the primary judge made any error in finding that she had not satisfied him that she was solvent at the date of the sequestration order. As his Honour found, there was no evidence that she had the ability to raise by sale, mortgage or pledge of her property or otherwise sufficient money to meet, as at 25 July 2011, as and when they fell due, her liabilities including the debt, plus interest, owing under the Master's order, together with $21,395 owing to her other former solicitors.
40 It follows that the third ground of appeal must be rejected.