Helfenbaum v St George Bank Ltd

von DOUSSA J: 3 I agree with the judgments that have been delivered by the other members of the Court. I certify that the preceding one (1) numbered paragraph is a true copy of the Reasons for Judgment herein of the Honourable Justice von Doussa.

On appeal from a single judge of the Federal Court of Australia

FINKELSTEIN J: 4 A sequestration order was made against the estate of the appellant upon a creditor's petition presented by the respondent. The act of bankruptcy upon which the petition was based was that execution had been issued against the appellant in respect of a judgment in the sum of $23,907.45 obtained under process of the Magistrates' Court at Melbourne and the execution was returned unsatisfied: see s 40(1)(d) of the Bankruptcy Act. 5 The making of the sequestration order was opposed. The appellant relied on an amended notice in which he set out his grounds of opposition. In substance those grounds were (a) that the appellant had "readily realisable assets exceeding the value of his debts"; (b) that the appellant had a claim against the respondent which exceeded the quantum of the judgment debt; and (c) no serious attempt had been made to enforce execution. The notice also disputed the claimed debts asserted by two supporting judgment creditors (Herbert Geer & Rundle, a firm of solicitors, and BMW Finance) but gave no particulars why those debts were not due. 6 It is convenient first to deal with the alleged deficiency in the attempted execution. At trial, the respondent called evidence from Mr Dobb, a senior sheriff's officer. His evidence was to the effect that he attended at the address where the appellant resided with a warrant of seizure, that he asked the appellant whether he owned any assets and was told "no" and that he was denied access to the property. Having been provided with this information, the deputy sheriff made the following notation on the warrant: "By virtue of this Warrant to me directed and delivered my Bailiffs were unable to find any personal or real estate upon which to make a levy. I now return this Warrant in accordance with the instructions of the within-named Plaintiff's Solicitors." 7 The appellant gave evidence disputing Mr Dobb's account of what occurred at the appellant's premises. In substance, the appellant said that Mr Dobb made no inquiry regarding whether the appellant had any assets to satisfy the judgment debt, and that he did not inform Mr Dobb that he had no such assets. 8 The appellant also gave evidence in support of his claim that he had readily‑realisable assets exceeding his liabilities. In his first affidavit, affirmed 19 June 2000, he deposed that he had assets worth $94,320 and liabilities in the order of $39,194.73. He said that his net assets were $55,125.27. 9 The appellant also relied upon an affidavit affirmed on 26 March 1999, filed in other proceedings, in which he set out the basis for his contention that he had a claim in damages against the respondent. In that affidavit, where the cause of action is briefly described, he estimates his losses as being "between $313,000 and $373,000 plus interest". 10 Then, in an affidavit filed on 21 August 2000, the appellant provided an updated list of his current assets and liabilities. He deposed that he had assets worth $138,355 and liabilities of $39,367.29. His alleged assets included trade debtors worth $39,665; a judgment debt obtained against a relative (a brother) in the sum of $13,790; a motor vehicle (a 1993 Nissan) said to be worth $18,000; cash at bank of $1,400; furniture and personal goods worth $25,000; and business assets, that is, manufacturing and computer equipment, said to be worth $40,500. 11 The appellant also deposed that in the year ended 30 June 1999 his "net income was $108,888, derived from professional fees working as an industrial pharmacist ($145,237) less business expenses ($36,349)." 12 In the affidavit the appellant explained why he disputed the debt due to Herbert Geer & Rundle, one of the supporting creditors. He said that he had instructed that firm to defend the action commenced by Advance Bank, the predecessor of the respondent. He said that the firm made a complaint to the Banking Ombudsman about Advance Bank's conduct rather than commencing a counterclaim. The appellant suggested that the Banking Ombudsman could only deal with claims of up to $150,000. Hence the complaint to the Banking Ombudsman was not pursued. The appellant asserts therefore that the firm "failed in their duty of care to me in failing to commence a counterclaim against the Applicant." 13 The appellant filed a further affidavit on 22 August 2000 where he provided some further explanation for disputing Herbert Geer & Rundle's debt. He alleged that he had instructed Herbert Geer & Rundle to prepare the proceeding against Advance Bank, but they had not done so. 14 In his affidavit the appellant also disputed the debt due to BMW Finance, the second supporting creditor. He said that BMW Finance had repossessed a motor vehicle he had obtained under a hire purchase agreement because he had fallen into arrears. BMW demanded payment of the amount of those arrears together with $410 repossession costs. The appellant said that he tendered the amount due but the tender was refused because he did not pay $300 legal expenses. The vehicle was then sold at an under-value. 15 The appellant was cross-examined. During the course of his cross-examination he admitted that another organisation, Moull Zemski Pty Ltd, had obtained a judgment against him in the sum of $20,000. His explanation for not disclosing that judgment was his belief that "the matter had ended". He also said that he disputed the debt. He said "I also dispute, you know, whether that debt is really outstanding. It may have been settled, it may have been written off, I don't know." 16 As regards the trade debtors, invoices for many of them having been issued a few days before the hearing of the petition, the appellant said that a number of debtors had partially paid the amounts due. As far as I can ascertain, more than $20,000 had been paid, but the appellant did not disclose the whereabouts of this money. Certainly, the appellant did not suggest that he held these amounts as an asset. 17 I can now come to the findings made by the trial judge. First he found that the appellant had committed an act of bankruptcy. With regard to the conflicting evidence concerning what occurred when Mr Dobb attempted to execute the warrant, the trial judge said, "I prefer the account given by Mr Dobb". He also found that the appellant "at least impliedly, represented to Mr Dobb that he owned none of the assets in the premises" where he was then living. 18 The appellant challenges these findings, in particular, the finding that the appellant had impliedly represented that he did not own assets at the premises. There are two answers to this complaint. The first is that once the trial judge found that he preferred the evidence given by Mr Dobb, there was no need for him to make any finding of an implicit representation because the evidence of Mr Dobb was that the appellant had made a direct representation to the effect alleged. 19 The second answer is that the inquiry concerning what had occurred when Mr Dobb attempted to execute the warrant was, strictly speaking, unnecessary. In King v Commercial Bank of Australia Limited (1921) 29 CLR 141, 153, the High Court said of the predecessor of s 40(1)(d) of the Bankruptcy Act, namely s 49(8) of the Insolvency Act 1915 (Cth), that it was only necessary to show proof that execution had issued and that it had been returned unsatisfied in whole or in part. The High Court said the truth or falsity of the return was not a relevant matter. This was because the legislature had considered that the return should be treated as correct. 20 However, under the Insolvency Act as in force when King v Commercial Bank was decided, there was a proviso to s 49(8) which read: "Provided that the debtor has been called upon to satisfy such judgment, decree or order by the officer or other person charged with the execution thereof and has failed to do so." 21 Because of that proviso, the High Court said (at 153) that the petitioner could not rest solely on an unsatisfied return. He also had to show a failure to pay the judgment debt when demanded. This is no longer a requirement because the current legislation contains no provision comparable to the proviso to s 49(8). 22 The trial judge then considered the evidence that bore on the appellant's claim that he had readily realisable assets that exceeded his debts. He correctly pointed out that the debtor had the onus of establishing solvency at the date of the petition if he wished to avoid the making of a sequestration order in reliance on s 52(2) of the Bankruptcy Act. He found, however, that the appellant had not discharged that onus. 23 First, the trial judge found that many of the asserted assets were not readily realisable. Second, he found that the amounts for which the appellant asserted many of those assets could be realised was "speculative within a wide range". 24 I can discern no error in these findings. Returning to the claimed assets, the following comments might be made: (a) The amount allegedly owed by trade debtors, around $45,000, had been paid in part and no corresponding asset was disclosed. As already stated, more than $20,000 had been paid. (b) The judgment debtor was a relative. The debt due was $13,790. No explanation was given concerning the nature of the judgment debt. No evidence was provided about the ability of the judgment debtor to pay the debt. This left the trial judge in the position where he was required to guess whether the amount was recoverable. If the appellant wished to rely on the debt as an asset, he was required to give evidence that it was payable and not require the judge to guess at that point. (c) It is plain that the value placed on the Nissan motor vehicle was overstated. According to an Internet search tendered by the appellant, a 1994 vehicle of that type was offered for sale at approximately $14,000. It is notorious that the asking price for a vehicle is more than its market or realisable price. In any event, as the respondent rightly points out, in determining whether or not a debtor is solvent regard should not be had to the possibility of realising assets which are necessary to maintain a reasonable level of existence. Household goods and a motor vehicle would fall into this category: see International Alpaca Management Pty Ltd v Ensor [1999] FCA 72. (d) The furniture and personal goods were described as a lounge suite, dining suite, television and video, kitchenware, crystal, crockery, cutlery, stereo, bedroom furniture, cabinet et cetera. The value attributed to those items was $25,000. No basis for this valuation was given. It was fairly described by the trial judge as speculative. In any event, these items of property are also to be disregarded upon the principles set forth in Ensor. (e) Finally, there is the business asset of manufacturing and computer equipment. The value of $40,500 was not supported by any details, although the appellant did give a breakdown of those assets. It is interesting to note, in any event, that when the appellant described his income and expenses for the 12 months ended 3 June 1999, one item of "business expense" was "depreciation plant and equipment - $1228". This rather suggests that the appellant may have been overstating the value of those assets. In any event, what is more important is that it was for the appellant to lead evidence in support of the value he had attributed to those assets, and this he failed to do. 25 The appellant also criticises the treatment by the trial judge of the appellant's liabilities. He says that those liabilities were over-valued. First, it is said that the trial judge should not have taken into account the claimed debt of $41,466 which, according to an affidavit filed at the hearing, was claimed to be due by the appellant under a loan agreement. The appellant said that the trial judge should not have taken this evidence into account, perhaps because the affidavit was filed so late or did not properly verify the matters it sought to prove. My reading of the reasons for decision do not suggest that this debt was taken into account by the trial judge in arriving at his decision. Accordingly, it is difficult to point to any error in that regard. 26 The trial judge did take into account the potential tax liability of the appellant, especially in relation to the income derived in the year ended 30 June 1999. In St George Bank Ltd v Helfenbaum [1999] FCA 1337, Sundberg J proceeded on the basis that in determining the solvency of the debtor it may be possible to take into account liability to income tax, although there has been no assessment making the tax payable under the Income Tax Assessment Act 1977 (Cth). I think there is much force in this view, especially when it is clear that income in respect of which income tax is payable has been earned and that an assessment will result in due course. 27 However, it is not necessary to express any concluded view on this aspect of the case, for it is not necessary to take any income tax liability into account in deciding whether or not the appellant is solvent. A careful examination of his assets shows that the assets do not exceed his admitted debts or, if they do, as the trial judge said, the matter is finely balanced. The appellant's explanation why his admitted debts are not payable is not sufficiently persuasive that it should have been given any credence by the trial judge. No error was shown in the trial judge's refusal to exercise his discretion under s 52(2) of the Bankruptcy Act. 28 In these circumstances, I would dismiss the appeal. I certify that the preceding twenty-five (25) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Finkelstein.