Lam v Cheng, in the matter of Cheng [2025] FCA 1520

Commonwealth Bank of Australia v Begonia Pty Ltd (1993) 11 ACLC 1075

Culleton v Balwyn Nominees Pty Ltd [2017] FCAFC 8; 343 ALR 632

Deputy Commissioner of Taxation v De Simone Consulting Pty Ltd [2007] FCA 548

Deputy Commissioner of Taxation v Bayconnection Property Developments Pty Ltd [2012] FCA 363; 127 ALD 64

Endresz v Australian Securities and Investments Commission (No 2) [2015] FCAFC 33; 228 FCR 334

Lam and Cheng & Ors (Costs) [2025] FCWA 107

Liang v LV Property Investments Pty Ltd [2015] FCA 1057

Rigg v Baker [2006] FCAFC 179; 155 FCR 531

Sandell v Porter [1966] HCA 28; (1966) 115 CLR 666

Xu v Megaward Pty Ltd [2018] NSWCA 232; 130 ACSR 412

1. The hearing of the creditors' petition be adjourned to a date to be fixed.
2. The Western Australian District Registrar be directed to remove the following documents from the Court file:

(a) affidavit in the form of the Family Court of Western Australia affirmed 9 December 2024 by the deponent identified as the wife in that proceeding and filed 10 December 2024 in this Court; and

(b) affidavit of Mr Francis Hung Lam sworn and filed 26 November 2024.

1. The Western Australian District Registrar be directed, with respect to each of the documents referred to in paragraph 2 of these orders to store an electronic record of that document in the Court's records associated with the proceeding in such a manner that it is identified as a document that has been voided together with a notation in the Court's records to the effect that: "The [name and date of filing of the relevant document] was removed from the Court file pursuant to orders made on 4 December 2025 and is stored in the Court's electronic records as a voided document. The electronic record of that document is not to be inspected by a person that is not a party to proceeding WAD 286 of 2024 Lam v Cheng except by order of a Judge of the Court."
2. The parties have liberty to apply to relist the hearing of the creditors' petition for further or other order on 48 hours' written notice.
3. The costs of the creditors' petition up to and including the date of these orders be reserved.
4. By 4.30pm (AWST) on 18 December 2025 the parties each file and serve:

(a) a minute of proposed orders regarding the costs reserved in paragraph 5 of these orders in terms consistent with paragraph 50 of the reasons for these orders and must include the sum, if any, in which it is proposed to fix the costs;

(b) written submissions (limited to three pages) regarding the costs reserved which must address the sum in which costs should be fixed if a lump sum costs order be made and any grounds for considering that a lump sum costs order would not be appropriate; and

(c) any affidavit(s) in support of the proposed orders.

1. By 4.30pm (AWST) on 15 January 2026 the parties each file and serve written submissions (limited to two pages) and any further affidavit(s) purely in reply to the documents the opposing party filed and served in accordance with paragraph 6 of these orders.
2. Subject to further order, the question of the costs reserved in paragraph 5 of these orders will be determined without an oral hearing.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

1. The applicants (petitioners) have presented a creditors' petition by which they seek a sequestration order against the respondent (debtor) under s 52(1) of the Bankruptcy Act 1966 (Cth). The petitioners and the debtor have been involved in long-running litigation in the Family Court of Western Australia and Supreme Court of Western Australia in connection with the dissolution of the debtor's marriage to the first-named petitioner's brother and partnerships between the brothers and their spouses. The judgment debts upon which the bankruptcy notice is founded arose out of various costs orders made in favour of the petitioners against the debtor in those proceedings. The debtor contends that the petition should be dismissed because she is solvent or there is another reason for doing so on the ground that, when the partnerships are finally wound up and final accounts taken, the petitioners will be required to account to her for an amount that exceeds the judgment debts. Alternatively, the debtor applies for an adjournment of the hearing of the petition until the winding up of the partnerships has been completed on the same ground. Consequently, there are four principal issues for determination on the hearing of the petition.

(1) Have the formal requirements for the petitioners to obtain a sequestration order been met?

(2) Has the debtor demonstrated that she is solvent?

(3) If not, has the debtor demonstrated that there is some other reason for dismissing the petition?

(4) If not, has the debtor otherwise demonstrated that there is sufficient reason to adjourn the hearing of the petition?

1. The petitioners relied upon an amended creditors' petition filed 14 November 2024 and read and relied upon the following affidavits.

(a) Affidavits of Mr Francis Lam affirmed 30 August 2024, 10 December 2024 and 10 February 2025.

(b) An affidavit of Mr Dawson affirmed 17 July 2024 (filed 7 October 2024).

(c) Affidavits of Mr Smith sworn 7 October 2024, 1 November 2024 (filed 4 November 2024), 11 November 2024, 15 November 2024, 2 December 2024, 29 April 2025 (annexing National Personal Insolvency Index) and 29 April 2025 (annexing Federal law search).

1. The debtor relied upon a notice stating grounds of opposition to petition filed 24 October 2024 and read and relied upon the following affidavits:

(a) Affidavits of Mr Lacerenza sworn 11 November 2024 and 29 April 2025.

(b) Affidavits of Ms Mary Cheng sworn 18 January 2025 (filed 20 January 2025) and 15 April 2025.

(c) Affidavits of Mr Crawley sworn 16 April 2025 and 22 April 2025.

1. As to the affidavit of Ms Cheng sworn 15 April 2025, the debtor only read and relied upon paragraphs 1, 6, 8, 12 (first sentence), 13, 14, 15, 17, 18, 22, 23 and 24 and annexures MC1 - MC5 of that affidavit. These paragraphs and documents were admitted over the applicants' objection. The documents were property appraisals and were admitted as evidence of the price at which a real estate agent would advise a seller of the properties to market them for sale as at the date of the appraisals. The documents were not admitted as opinion evidence of the market price of the properties. The paragraphs of the affidavit that were not read and the documents referred to in those paragraphs that were annexed to the affidavit have been disregarded and treated as struck-out. The property appraisals related to properties of the partnerships that remain unsold.
2. The petitioners also objected to the affidavits of Mr Crawley. However, these were not admitted as evidence, but in effect as a submission. The effect of Mr Crawley's affidavits is to depose to certain adjustments to the accounts of the partnerships taken as at June 2018. These adjustments involve mathematical calculations based on an assumption that the current values of the unsold partnership properties are equal to the prices in the appraisals and on a further assumption that the account taken does not bring to account a payment that the debtor and her former husband made to a creditor of the partnerships as a contribution they made to the partnerships. The facts underlying these assumptions were not proved by other evidence.
3. The debtor also tendered an affidavit of Ms Sales sworn 6 December 2021 and filed in action CIV 1708 of 2015 in the Supreme Court. That affidavit was received as Exh A. That exhibit together with an annexure to Ms Cheng's affidavit of 20 January 2025 comprise an independent expert report that reflects the outcome of the account taken between the partners in action CIV 1708 of 2015 in the Supreme Court. That report was adopted by order of Tottle J in that action.
4. There were other affidavits filed in the proceeding that were not read or relied upon at the hearing. Of those, there were two that were filed in error. The first is an affidavit of Mr Lam sworn 26 November 2024. Amongst other things, that affidavit annexes a financial statement filed in a proceeding in the Family Court. The petitioners accept that the annexure is subject to an 'implied undertaking' that the document is not to be used for a purpose other than that for which it was filed in the Family Court. The second is an affidavit of a person affirmed 9 December 2024. That affidavit is in a form used in the Family Court and pertains to a proceeding in that court unrelated to any of the parties in this proceeding. It is not in a form used in this Court. At the hearing I indicated that I would make orders for these documents to be removed from the Court file.
5. Rule 2.28(1)(c) of the Federal Court Rules 2011 (Cth) provides that a document that has been accepted for filing will be removed from a Court file if the Court is satisfied that the document is an abuse of process or should not have been accepted for filing under r 2.27. Rule 2.27(b) provides that a document will not be accepted for filing if it does not substantially comply with the Rules. I am satisfied that use of the applicable annexure to the affidavit of Mr Lam in this proceeding without the Family Court releasing the petitioners from the implied undertaking would amount to an abuse of process. I am also satisfied that the affidavit of the other deponent was not in a form that complied with the Rules and should not have been accepted for filing. Therefore, each of these documents should be removed from the Court file.
6. The parties also filed written and made oral submissions in support of and in opposition to the petition. In addition, the debtor's legal representatives sent a letter dated 14 October 2025 and email dated 29 October 2025 addressed to the staff of my chambers. The letter attached an email from the debtor, a letter from her to Johnstone Crouse Lawyers and reasons for decision of Chief Judge Sutherland of the Family Court of 14 May 2025 in Lam and Cheng & Ors (Costs) [2025] FCWA 107. The email attached orders of Chief Judge Sutherland in proceeding 2497 of 2012 made 21 May 2025. Each communication, in effect, sought to make further submissions and put further evidence before the Court after judgment was reserved without leave. These materials have been ignored and have not been taken into account in my reasons for judgment and orders.

1. It is convenient to commence with a summary of the applicable principles none of which was seriously contested. (All references in these reasons to parts, divisions, sections or schedules are references to the Bankruptcy Act unless otherwise indicated.)
2. A petitioning creditor has a prima facie right to a sequestration order once proof of the matters required by s 52(1) have been met: Endresz v Australian Securities and Investments Commission (No 2) [2015] FCAFC 33; 228 FCR 334 at [36] (Edmonds, Gordon and Beach JJ). Nonetheless, there is a discretion to dismiss the application if the Court is satisfied by the debtor that she is able to pay her debts or for 'other sufficient cause' a sequestration order should not be made: s 52(2). The debtor bears the onus of proving solvency or other sufficient cause on the balance of probabilities: e.g., Culleton v Balwyn Nominees Pty Ltd [2017] FCAFC 8; 343 ALR 632 at [44] (Allsop CJ, Dowsett and Besanko JJ). Even if not satisfied of the debtor's solvency or that there is other sufficient cause, the Court has a discretion to adjourn the hearing of the petition in appropriate circumstances: s 33(1); Endresz at [38].
3. A debtor is solvent if, and only if, the person is able to pay all the person's debts, as and when they become payable: s 5(2). A debtor that is not solvent is insolvent: s 5(3). The enquiry into the ability of a person to pay all debts as and when they become payable is not confined to cash or equivalent resources immediately available. The ability to pay extends to money that can be procured by realisation by sale, mortgage or pledge of 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). A conclusion of insolvency, or solvency, should be clear from a consideration of the debtor's financial position in its entirety and, in general, should not be drawn from evidence of a temporary lack of liquidity: Sandell v Porter [1966] HCA 28; 115 CLR 666 at 670 (Barwick CJ).
4. The circumstances which may constitute 'other sufficient cause' are extremely variable and it is not appropriate to catalogue or circumscribe them: Endresz at [37]. Nonetheless, the existence of a cross-claim that, if successful, would well exceed the judgment debt may be a 'sufficient cause': Rigg v Baker [2006] FCAFC 179; 155 FCR 531 at [65] (French J). However, the authorities draw a distinction between a cross-claim that is likely to succeed and a cross-claim that is bona fide and reasonably arguable, but has not been established as likely to succeed. The former case may warrant dismissal of the petition. In the latter case, while there may be a proper basis for adjourning the hearing under s 33(1), dismissal of the petition under s 52(2)(b) would not be justified: Liang v LV Property Investments Pty Ltd [2015] FCA 1057 at [58]- [60] (Beach J); Rigg at [66].
5. If 'other sufficient cause' is not made out under s 52(2)(b), then the exercise of any discretion to dismiss the petition under s 52(2) does not arise. However, a question may arise as to whether the Court should proceed to make a sequestration order or exercise the discretion under s 33(1) to adjourn the application. There is no exhaustive catalogue of the circumstances under which the Court should grant an adjournment of a petition. The general context of each individual case must be considered and it is not confined to circumstances in which there is a pending appeal against the judgment relied upon as the foundation for the act of bankruptcy and creditors' petition: Endresz at [38], [59].

Have the petitioners proved the formal requirements?

1. It was not in issue that the applicants have proved the matters required by s 52(1) and the other applicable provisions of the Bankruptcy Act, Federal Court (Bankruptcy) Rules 2016 (Cth) and Bankruptcy Regulations 2021 (Cth). A summary of the applicable requirements and proof is set out in the Schedule to these reasons. Thus, the applicants are prima facie entitled to a sequestration order.

1. The debtor contends that she is solvent on the ground that she will be entitled to a share of the net assets upon winding up of partnerships that will exceed the judgment debts the subject of the bankruptcy notice. The debtor has commenced an action in the Supreme Court in which she seeks an order winding up the partnerships and the taking of final partnership accounts. In substance, the debtor contends that she will succeed, or is likely to succeed, in obtaining an order in her favour in the Supreme Court by which the petitioners will be obliged to account to her for an amount well in excess of the judgment debts the subject of the bankruptcy notice and creditors' petition.

1. To understand the evidence about the debtor's contention it is necessary to provide an explanation of the background to the judgment debts. The following summary is taken in part from the affidavits read at the hearing and in part from the plethora of published judgments in the various proceedings to which the debtor and petitioners are parties.
2. As already mentioned, the debtor was married to the first-named petitioner's brother. The petitioners are married. The debtor, her former husband and the petitioners were partners in a series of partnerships relating to the purchase, development and sale of real property situated in the suburbs of Perth. The personal and commercial relationships between the co-venturers soured resulting in ongoing litigation in the Family Court and Supreme Court since 2012. The petitioners issued the bankruptcy notice based upon costs orders made against the debtor in some of those proceedings. The total of the judgment debts the subject of the bankruptcy notice is $460,841.53. The total debt is comprised of the following costs orders:

(a) $66,666.00 by order made on 12 April 2024 in proceeding PTW 2497 of 2012 in the Family Court.

(b) $256,006.65 by order made on 21 September 2022 in action CIV 1706 of 2015 in the Supreme Court.

(c) $13,317.00 by order made on 21 September 2022 in action CIV 1706 of 2015 in the Supreme Court.

(d) $73,748.67 by order made on 3 August 2022 in action CIV 2563 of 2013 in the Supreme Court.

(e) $51,103.21 by order made on 19 August 2022 in appeal CACV 63 of 2020 in the Supreme Court.

1. Following the breakdown of the debtor's marriage, proceeding PTW 2497 of 2012 for property settlement was instituted in the Family Court. The applicants in that proceeding are the debtor's former husband and his trustee in bankruptcy. The respondents in that proceeding are the debtor, the petitioners and a company associated with the petitioners, Chemech Pty Ltd. The orders made on 12 April 2014, including the costs order, were the subject of a successful appeal in proceeding NAA 104 of 2024 in the Federal Circuit and Family Court of Australia (Division 1). On 15 November 2024 the original costs order was set aside and the question of those costs was remitted to a judge of the Family Court for rehearing. The debtor was also ordered to pay the costs of the petitioners and Chemech in the appeal fixed in the sum of $9,000. Accordingly, $66,666 of the judgment debts is no longer due and payable and the unpaid amount of the bankruptcy notice is $394,175.53. The judgment debt of $9,000 is not the subject of the bankruptcy notice but is relevant in that it can be taken into account when considering the solvency and overall financial position of the debtor.
2. Action CIV 1706 of 2015 involves the partnerships. The debtor is the plaintiff and the petitioners the defendants in that action. The petitioners are also plaintiffs by counterclaim and the debtor a defendant by counterclaim in that action. The other defendants to the counterclaim were another brother of the debtor's former husband and his uncle. A trial in that action was heard before Chaney J who made findings as to the terms of the parties' agreement to purchase, development and sell real property. Broadly, Chaney J found that the parties had entered into separate agreements for each property. On 28 June 2018 his Honour ordered that the partnerships be dissolved from the commencement of the action and that there be an account taken before a registrar of the Supreme Court. His Honour also ordered that there be no order as to the cost of the action to the date of those orders.
3. The account was taken by Registrar Whitbread over a period of nine days. Justice Tottle adopted the Registrar's report except in one respect. The debtor unsuccessfully appealed that decision in appeal CACV 63 of 2020 in the Court of Appeal. Justice Tottle then ordered the appointment of an independent expert to address the remaining matter. The independent expert prepared a report and a subsequent amending report. Justice Tottle adopted the independent expert report as amended. The debtor also appealed that adoption order in appeal CACV 50 of 2022 in the Court of Appeal. The debtor discontinued that appeal after an order for security for costs was made. Later, the Registrar made orders concerning the costs of the taking of the account. The Registrar ordered the debtor to pay 80% of the petitioners' costs up to 4 April 2019 on a party/party basis and 85% of the petitioners' costs after 4 April 2019 on an indemnity basis. The cost orders made on 21 September 2022 relate to those cost orders. The costs order made on 19 August 2022 relate to the cost in appeal CACV 63 of 2020. No cost order has been made in appeal CACV 50 of 2022, but it can be expected that the petitioners will pursue an order that the debtor pay their costs of that appeal as a consequence of the debtor discontinuing the appeal.
4. Earlier, the Commonwealth Bank of Australia commenced action CIV 2563 of 2013 against the debtor, her former husband and the petitioners. The bank claimed amounts owing pursuant to two loan agreements and accompanying mortgages and possession of two properties the subject of the partnerships. After a contested interlocutory application, the debtor's defence and counterclaim was struck-out, broadly, as an abuse of process because it pleaded matters that contradicted findings that Chaney J had made in the partnership proceeding and because it raised matters that ought reasonably to have been raised in the partnership proceeding. The debtor was not given leave to replead and consequently her counterclaim against the petitioners was dismissed and they were awarded their costs of defending the counterclaim. The costs of the strike-out and dismissal are the subject of the costs order made on 3 August 2022. The debtor instituted appeal CACV 83 of 2022 in the Court of Appeal from the orders striking out and dismissing her counterclaim against the petitioners. That appeal was dismissed and the debtor was ordered to pay the costs of the bank and petitioners in that appeal. Those costs have not been taxed and do not form part of the judgment debts the subject of the bankruptcy notice.
5. In addition to the actions, proceedings and appeals in the Supreme Court and Family Court, the petitioners commenced proceeding WAD 235 of 2022 seeking a sequestration order against the debtor. That proceeding was dismissed and a costs order made against the petitioners in favour of the debtor. The debtor has filed a bill of costs claiming costs and disbursements in the total sum of $74,965.00.
6. It follows that the total outstanding amount of the judgment debts is $394,175.53 ($460,841.53 minus $66,666.00). The debtor is also indebted to the petitioners for an additional $9,000 under the costs order in NAA 104 of 2024. The petitioners also have unliquidated claims for further costs that will crystallise into debts in the future. Against the present and future debts owed to the petitioners, the debtor has an unliquidated claim for $74,965.00 that will crystallise into a debt in the future. However, the state of this evidence does not permit any finding to be made regarding the likely future orders for payment of costs that will be made for and against the debtor. The most that can be said is that there are future debts based on existing costs orders that after taxation will be setoff against one another to some extent. It is not possible to determine if there will be a sum due or a sum owing to the debtor or the amount of that sum in the future. This evidence, such as it is, is neutral and is not particularly informative of the debtor's overall financial position. But, on the basis of the debtor's bill of costs filed in WAD 235 of 2022, on any view, she does not have a costs claim that will exceed the remaining judgment debts.

1. As a consequence of the orders of Chaney J and Tottle J in CIV 1706 of 2015, an account was taken of the partnership as between the debtor and her former husband, on the one hand, and the petitioners up to the end of June 2018. As of June 2018 there were five properties of the partnerships that had not been sold. There were outstanding loans to the Commonwealth Bank and the bank had mortgages over some or all of the unsold properties. That remains the case. The bank loans continue to accrue interest which has been capitalised increasing the outstanding balance of the loans. Holding costs are also likely to have been incurred such as rates and taxes. Rents may or may not have been received. There was no evidence about these matters except that the Commonwealth Bank loan has increased from $2,351,702 to $2,991,627.
2. Although the parties evidently agree on little else, it is apparently common ground that the account taken will need to be updated to reflect interest and costs associated with bank loans, other outgoings and rental income since June 2018 and, if the properties are sold, the actual sale proceeds. However, Tottle J has taken the view that winding up of the partnerships cannot be achieved in CIV 1706 of 2015 because no party sought that relief in that action: Cheng v Lam (No 8) [2022] WASC 122 at [12]- [16]. Consequently, the debtor commenced a new partnership action in CIV 2438 of 2023 in the Supreme Court against the petitioners, her former husband and her former husband's trustee in bankruptcy. In that proceeding, the debtor seeks orders for each separate partnership to be wound up and for the appointment of a receiver and manager to the assets and business of the partnerships.
3. The debtor has filed a statement of claim and the petitioners a defence in CIV 2438 of 2023. Broadly, there is general agreement on the material facts of the existence and terms of the partnerships. However, the petitioners plead that certain of the partnerships, in effect, have been wound up through sale of the properties and the final account between the partners has been taken through the reports adopted in CIV 1706 of 2015. In the case of partnerships for the properties that have not been sold, the petitioners agree that these should be wound up and receivers appointed, however, the petitioners contend that powers of the receivers should be limited, in effect, in a manner that would preclude the debtor from re-opening and reconsidering the account taken and reports adopted in CIV 1706 of 2015. Further, the petitioners contend that the debtor is only entitled to the final balance of the partnerships to which she was a partner. For some partnerships evidently her former husband and not the debtor was a partner. Therefore, she cannot claim an entitlement to the net assets of partnerships of which only her former husband was a partner.
4. It follows that, subject to certain points of detail, the debtor and the petitioners agree that the partnerships must be wound up, the remaining properties sold, receivers appointed, and the net proceeds of the sale distributed to the former partners. There will, no doubt, continue to be controversy regarding the manner in which each partner's share of the net proceeds should be determined and distributed.

1. As the debtor has the onus of proving solvency, the Court would ordinarily expect a debtor resisting a creditor's petition on the ground of solvency to adduce the most cogent and complete evidence of the debtor's financial position and circumstances available to the debtor. Depending upon the degree of doubt justified by the facts, the Court may consider that the only evidence to be treated as probative is that which is the 'fullest and best' evidence available, but there is no principle that a debtor will fail to discharge the onus of proving solvency in the absence of evidence of that character. Nonetheless, the absence of the 'fullest and best' evidence may be a useful tool to be used, where appropriate, by which to analyse the evidence and make findings of fact on the balance of probabilities: see, Xu v Megaward Pty Ltd [2018] NSWCA 232; 130 ACSR 412 [30]-[32] (McColl, Meagher and Leeming JJA); Deputy Commissioner of Taxation v De Simone Consulting Pty Ltd [2007] FCA 548 at [10]- [14] (Finkelstein J); Coates Hire Operations Pty Ltd v D-Link Homes Pty Ltd [2011] NSWSC 1279 at [60]- [61] and [66] (White J); Deputy Commissioner of Taxation v Bayconnection Property Developments Pty Ltd [2012] FCA 363; 127 ALD 64 at [60]- [61] (Robertson J); Commonwealth Bank of Australia v Begonia Pty Ltd (1993) 11 ACLC 1075 at 1081 (Hayne J).
2. The debtor's evidence of her financial position is sparse. It is not the 'fullest and best evidence' or, indeed, any real evidence upon which findings of fact could be made with any confidence. Certain information relating to revenue and expenses of the partnerships since June 2018 may not be readily available to her, but other information pertaining to her personal property, income and expenses should be available to her and has not been adduced. In substance, her claim to solvency rests entirely on demonstrating that, upon winding up the partnerships in the new partnership proceeding, she will receive a distribution as her share of net proceeds in a sum well in excess of the remaining judgment debts taking into account the existing other costs order for and against the debtor. Further, having regard to the circumstances, the prospect of the receipt of that distribution should be regarded as sufficiently proximate or liquid for her to be regarded as having the ability to pay her debts as and when they fall due for payment.
3. The debtor's evidence, such as it is, falls well short of that which would be necessary to demonstrate that she will receive a distribution of that magnitude. Moreover, the submissions of the debtor regarding what findings and inferences the Court could make based on the evidence available were confusing and appear, at least in part, to be based on an attempt to re-open aspects of the reports adopted in CIV 1706 of 2015. While it may be inferred that the debtor will receive a distribution and that it is likely to be greater than the entitlement identified in the account taken as at June 2018, the magnitude of that distribution is pure speculation.
4. The debtor adduced a report of Mr Crawley. As already mentioned, Mr Crawley's affidavit was received as submission not evidence. Mr Crawley started with an 'opening balance' for the debtor and her former husband taken from the reports adopted in CIV 1706 of 2015 which he adjusted based upon certain assumptions he was asked to make. The petitioners challenged the opening balance Mr Crawley used and all the assumptions he was asked to make. The petitioners also submit that the assumptions he was asked to make are incomplete and inadequate to bring the account between the partners up to date.
5. Mr Crawley's opening balance was $465,385. That amount reflects the final item in the adopted amended independent expert report. That amount took into account that $328,129.00 had been paid into an account and held in escrow pursuant to orders made in PTW 2497 of 2012. The orders made on appeal in NAA 104 of 2024 required that sum to be paid to Chemech. It was common ground that the funds have been paid, but the parties contest the effect that payment has on the effect of the adopted report. The debtor submits that as the payment was made to Chemech in respect of partnership debts the payment should not be treated as a payment to her and her former husband as is reflected in the adopted report. The petitioners submit that the true opening balance is $137,256.00 ($465,385.00 minus $328,129.00) recorded in the adopted report as the net liability position of the debtor and her former husband before application of the funds held in escrow.
6. It is not possible to resolve the contested position on the evidence and information before the Court on this application and without further evidence or information regarding the treatment of the funds held in escrow. But, on the face of the adopted report, it appears to treat those funds as a payment or contribution made by the debtor and her former husband rather than a payment made to them because it has the effect of increasing the amount by which the other partners were required to account to them for the net profits of the partnerships. Accordingly, it is reasonably arguable that, notwithstanding the order in the Family Court proceedings and the payment of the funds to Chemech, the adopted reports record $465,385.00 as the amount in which the petitioners are obliged to account to the debtor and her former husband. Setting off half that amount (i.e., the debtor's share) against the remaining judgment debts leaves an unpaid balance of $161,496.53 ($394,175.53 minus $232,679.00).
7. From the opening balance, Mr Crawley makes two adjustments. The first is an amount of $642,166.00 based on an increase in the value of the unsold partnership properties. The second is $604,580.00 based on an adjustment to the funds the debtor and her former husband received recorded in the adopted reports. After these adjustments, the amount due to the debtor and her former husband is $1,712,104.00. Half that amount would discharge the remaining judgment debts and leave the debtor with a surplus of $461,876.47 ($856,052.00 minus $394,175.53). However, in addition to the dispute regarding the correct opening balance, there are a number of difficulties accepting that Mr Crawley's adjustments reflect 'a claim that is likely to succeed' in the new partnership proceeding.
8. Regarding the second adjustment, in the adopted reports there is an item recording that the debtor and her former husband received the sum of $707,818.00 from the sale of one of the properties. She contends that after settlement of the sale of that property she and her former husband paid $604,580.00 to Chemech which was not accounted for in the adopted reports. The debtor deposes to facts to support that contention and adduced a Chemech bank statement recording a deposit of $604,580.00 on 18 August 2014. However, the corresponding entry in a bank statement of the debtor or her former husband was not adduced. In the adjustments Mr Crawley made to the adopted reports he has treated the payment of $604,580.00 as a payment made by the debtor and her former husband on behalf of the partnerships.
9. There are two difficulties with accepting the evidence about the additional payment made to Chemech. First, as already mentioned, there is no documentary evidence of the corresponding payment that should be available to the debtor and should have been available to the debtor and her former husband with whom the account was taken. Second, it is a collateral challenge to an entry in reports which have been adopted in the earlier Supreme Court proceedings. At best, the adjustment may be viewed as an argument that the debtor wants to raise in the new partnership proceeding. On the information available, it is barely arguable that the payment was made for the partnership and no ground for re-opening the adopted report was identified. In the course of the debtor's oral submissions, she indicated that, for the purposes of this application, the second adjustment could be disregarded and it may be a matter she needs to take up with her former husband. Therefore, the second adjustment can be ignored.
10. The first adjustment has a better, but still precarious, foundation. It also suffers from two significant difficulties. First, an absence of any evidence of the market value of the unsold properties to support the adjustment. Second, the adjustment fails to take into account any factor other than an assumed increase in the value of the properties.
11. As to the first problem, Mr Crawley was provided with market appraisal of the unsold properties. The debtor deposes facts relating to the circumstances in which the market appraisals were obtained. As already mentioned, the evidence of the market appraisals was received on the limited basis that it was evidence of the price at which a real estate agent would advise a seller of those properties to market them. It is not and was not received as evidence of the market value of the properties. Mr Crawley treated the market appraisals as valuations and the price at which the properties would be sold on a winding up of the partnerships. Mr Crawley reduced the appraisal by a factor of ten percent to account for selling costs. But, again, while it may be inferred that there would be selling costs, there was no evidence of what those costs would likely be or that ten percent is or is not a reasonable estimate of those costs. Taking these matters into account, at best, the 'net amended valuations' Mr Crawley has used to calculate the first adjustment may be regarded as sufficient to provide a reasonable basis to 'plead' the values of those properties as a fact in legal proceedings. Therefore, the 'net amended valuations' may be accepted as no more than reasonably arguable for the purposes of this application.
12. As to the second problem, the adjustment does not take into account that there has been an increase in the partners' indebtedness to the Commonwealth Bank from $2,351,702.00 to $2,991,627.00. That is, any increase in the value of the properties must take into account the corresponding increase in debt of $639,925.00 ($2,991,627.00 minus $2,351,702.00). The adjustment also does not take into account other outgoings of the partnerships such as development expenses, rates, taxes and other holding costs that are likely to have been incurred since June 2018 with respect to the unsold properties. Likewise, the adjustment does not take into account any revenue, such as rent, received with respect to the properties or account for any partner's use of the properties.
13. In the course of her oral submissions, the debtor accepted that there was a lot of missing information and that there was no evidence on this application of those matters which, she submits, 'has got to be pursued in the winding up proceedings'. Her ultimate submission was to the effect that the Court can be satisfied from the information available that the amount of a distribution to the debtor and her former husband upon completion of the winding up of the partnerships will be around $1.1 million or around $550,000 to the debtor. That submission is not accepted. For the reasons already given, the quantum of any amount that may be paid to the debtor upon completion of the winding up in the new partnership proceeding is mere speculation. The debtor has not proved that she is solvent.

Has the debtor proved 'other sufficient cause'?

1. For the same reason that there is no evidence of the debtor's solvency there is no evidence that the debtor is likely to 'succeed' in the new partnership proceeding and, if so, that she will be entitled to an amount on the taking of the final partnership accounts that is well in excess of the remaining total of the judgment debts. Nonetheless, there is evidence of a bona fide claim for an amount that could exceed the judgment debts. However, there is insufficient evidence of the amount of any entitlement upon the taking of the final partnership accounts to conclude that there is a bona fide reasonably arguable claim for an amount that will or is likely to exceed the judgment debts. The debtor has not proved there is other sufficient cause that would enliven the Court's power to dismiss the petition.

1. As has been mentioned, it is not possible or appropriate to catalogue all of the factors that may be taken into account in the exercise of the power to adjourn the application. However, similar factors to those that inform the exercise of the discretion to adjourn any proceeding or hearing are relevant. The discretion must be exercised judicially and the ultimate question is whether it is in the interests of the administration of justice to grant or refuse the adjournment. In general, exercise of a discretion to adjourn a proceeding requires balancing the prejudice to the party applying for an adjournment if it not be granted against the prejudice to the party resisting the adjournment if it be granted. Section 37M of the Federal Court of Australia Act 1976 (Cth) should also be taken into account as should any general prejudice the public interest in the expeditious completion of proceedings. In the context of an application to adjourn the hearing of a creditors' petition, consideration of the interests of the administration of justice also has to take into account the special nature of bankruptcy proceedings.
2. There is an additional public interest in having bankruptcy proceedings resolved expeditiously because they deal not only with the private interests between the petitioning creditor and debtor, but also with interests of the general body of the debtor's creditors if the debtor is insolvent. However, there is also a broad principle that a court exercising jurisdiction in bankruptcy should not proceed to sequestrate the estate of a debtor unless the court is satisfied that the debt on which the petitioning creditor relies is due by the debtor and that if any genuine dispute exists as to the liability of the debtor to the petitioning creditor it should be investigated before the person is made bankrupt. 'Bankruptcy is not mere inter partes litigation. It involves a change of status and has quasi-penal consequences.' Therefore, it is well-established that, in general, a court will not make a debtor bankrupt where an appeal is pending against the judgment relied upon as the foundation of the bankruptcy proceedings provided that the appeal is based on genuine and arguable grounds: Ahern v Deputy Commissioner of Taxation (Qld) [1987] FCA 504; (1987) 76 ALR 137 at 148 (Davies, Lockhart and Neaves JJ). See, also, Culleton at [40] (Allsop CJ, Dowsett and Besanko JJ).
3. As already mentioned, the exercise of the discretion is not confined to circumstances in which there is an appeal against the order that is the foundation for the petition. In Endresz the relevant debtor's inability to pay the judgment debt arose from freezing orders that had been made against him in separate proceedings. The relevant debtor appealed against that order and, therefore, the cause of his inability to pay the debt was under bona fide challenge albeit in a separate proceeding. The Full Court considered that to be 'a powerful discretionary reason in favour of adjourning the petition': Endresz at [47]. Endresz was also a case where the relevant debtor had not established that there was 'other sufficient cause' by reason of the appeal in the separate proceeding in which he was challenging the freezing orders.
4. There is a similarly powerful discretionary reason in favour of adjourning the petition in this case. On the basis of the account already taken in the Supreme Court, upon winding up the partnerships the debtor would be able to discharge a significant portion of the remaining judgment debts. The debtor is prosecuting bona fide new partnership winding up proceedings in the Supreme Court. Although there is insufficient evidence to demonstrate that the debtor is likely to receive a distribution that will discharge the judgment debts, there is sufficient information to be satisfied that it is reasonably arguable that she may receive a distribution of sufficient magnitude to pay the remaining judgment debts. If made bankrupt, the debtor would also lose control of the new partnership proceedings. Any trustee in bankruptcy may or may not wish to continue prosecuting her claim in those proceedings or may approach it in a manner that is not to the debtor's advantage. The debtor has a genuine chance or opportunity to discharge the remaining judgment debts and avoid bankruptcy if the new partnership proceedings are prosecuted to completion. On the information available that chance or opportunity is of sufficient merit to warrant an adjournment of the hearing of the petition while the debtor's cross-claims are investigated.
5. There will be undoubted prejudice to the petitioners in granting an adjournment. The practical effect of adjourning the hearing will be to dismiss the application. The petitioners have a prima facie right to a sequestration order. There is significant private and public interest in avoiding or minimising delay once bankruptcy proceedings have been instituted. Further, unless extended, the petition will lapse within 12 months from the date of its presentation: s 52(4), s 52(5). While that period can be extended up to 24 months, it is very unlikely that the new partnership proceedings will be completed within that period. Also, as the petitioners have made no application to extend that period, it is now too late to do so. Nonetheless, that prejudice is somewhat limited because the lapsing of the petition does not preclude the petitioners from issuing another bankruptcy notice and presenting another creditor's petition in due course. Therefore, the substantive prejudice to the petitioners is the costs thrown away consequent on the adjournment and that prejudice can be ameliorated by an order to the effect that the debtor pay the petitioners wasted costs.
6. There will also be general prejudice to the public interest in the expeditious resolution of disputes in the Court generally and in bankruptcy proceedings in particular. As the practical effect of the adjournment will be to dismiss the petition, if the debtor does not 'succeed' in the new partnership proceeding the petitioners or other creditors will have to establish new acts of bankruptcy with a new commencement date and relation back period. However, as the debtor's principal asset is her interest in the partnerships and that interest is effectively 'locked-in' through the Commonwealth Bank mortgages and dissolved partnerships there is unlikely to be any new transactions affecting that asset. Unlike bankruptcy proceedings against an individual that is carrying on business, there is no suggestion here that the debtor is likely to incur substantial further liabilities to the prejudice of her general body of creditors if a sequestration order were not made immediately. The effect of the adjournment and delay can also be ameliorated by prosecuting the winding up of the partnerships with all due expedition. While it is not possible to predict the timeframe within which the new partnership proceedings will be resolved, all parties to those proceedings have an interest in its expeditious resolution. Further, given that a substantial account has already been taken and there is largely agreement on the facts and need to wind up the partnerships, resolution of the new partnership proceedings should be a relatively straightforward.
7. On balance, the prejudice to the petitioners, the public interest and the debtor's other creditors arising from an adjournment of the creditors' petition does not outweigh the prejudice to the debtor of losing the opportunity to discharge the judgment debts and avoid the change of status resulting from a sequestration order.

1. The hearing of the creditors' petition should be adjourned. However, as the debtor has not been successful in opposing the grant of a sequestration order and the practical effect of granting the adjournment she has requested will be to dismiss the petition, the debtor should pay the petitioners' costs thrown away consequent on the adjournment. In this respect, there is a tension between s 51 (which provides that, subject to certain statutory provisions for priority payments, the prosecution of a creditor's petition up to and including the making of a sequestration order on the petition is at the expense of the creditor) and s 32 and s 33(1)(a) (which provide that the Court has a general discretion as to costs in bankruptcy proceedings and may adjourn a proceeding 'upon such terms as it thinks fit'). Therefore, I will hear the parties on the precise form of that costs order and on the question of the other costs of the proceeding up to and including the hearing.

I certify that the preceding fifty (50) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Feutrill.

Jurisdiction to make sequestration orders (s 43(1) of the Bankruptcy Act 1966 (Cth))

s 43(1)(a);

s 40(1)(g)

Affidavit of Mr Dawson affirmed 17 July 2024; Amended Creditors' Petition filed 14 November 2024; Affidavit of Mr Francis Lam affirmed 30 August 2024.

At time of act of bankruptcy, debtor ordinarily resident/personally present in Australia

s 43(1)(b)(i)

Amended Creditors' Petition filed 14 November 2024; Affidavit of Mr Francis Lam affirmed 30 August 2024.

Satisfaction of conditions for creditor's petition (s 44 of the Bankruptcy Act and reg 10A of the Bankruptcy Regulations 2021 (Cth))

Debt owing amounts to statutory minimum ($10,000)

s 44(1)(a);

reg 10A

Amended Creditors' Petition filed 14 November 2024; Affidavit of Mr Francis Lam affirmed 30 August 2024.

Debt is payable immediately/at certain future time

s 44(1)(b)(ii)

Affidavit of Mr Dawson affirmed 17 July 2024 (annexed court orders)

Act of bankruptcy committed within 6 months before presentation of petition

s 44(1)(c)

Amended Creditors' Petition filed 14 November 2024; Affidavit of Mr Francis Lam affirmed 30 August 2024.

Satisfaction of requirements as to creditor's petition (s 47 of the Bankruptcy Act and r 4.02 and r 4.04 of the Federal Court (Bankruptcy) Rules 2016 (Cth))

Petition verified by affidavit of person who knows relevant facts

Affidavit of Mr Francis Lam affirmed 30 August 2024.

Affidavit that records of Court have been searched and no application in relation to bankruptcy notice made

Affidavit of service of relevant bankruptcy notice

Proof of matters required at proceedings on creditor's petition (s 52(1) of the Bankruptcy Act and r 4.05 and r 4.06 of the Bankruptcy Rules)

Matters stated in petition (verified by affidavit)

Affidavit of Mr Francis Lam affirmed 30 August 2024.

Existence of petition creditor's debt (is or are still owing)

Affidavits of Mr Francis Lam affirmed 30 August 2024 and 10 December 2024

Affidavit of search of National Personal Insolvency Index

Affidavit that each debt relied upon is still owing

Affidavits of Mr Francis Lam affirmed 30 August 2024 and 10 December 2024