Prestia, in the matter of Australia and New Zealand Banking Group Limited v Prestia

"Annexed and marked 'C' is a true copy of the Demand dated 29 September 1999 which I am informed by Serena Roppolo of Kemp Strang Lawyers and verily believe was served on the respondent debtor by express post on or about 30 September 1999." 14 The only document produced in answer to par 3 of the subpoena was an affidavit of Amanda White of 6 October 2000 filed in the Supreme Court proceedings. That affidavit exhibited a bundle of documents comprising true copies "of some of the documents held" by the ANZ Bank in its file relating to Nationwide. The documents exhibited were copies of standard guarantee and indemnities, a copy of mortgage signed by Mr and Mrs Prestia, copies of demands, a copy of a company search and a copy of the Bank's general conditions of use for business and investment facilities. No bank statements were produced, nor were any other records produced which would show the quantum of Nationwide's indebtedness to the ANZ Bank from time to time. 15 Mr Prestia gave evidence in the proceedings. The following emerged in cross-examination, or, in the case of the last matter, in re-examination: - Nationwide had an overdraft facility with the ANZ Bank in the sum of $100,000; - monthly bank statements were sent by ANZ Bank to Nationwide until about December 1998 when Franklins ceased trading with Nationwide, but not thereafter; - Nationwide did not pay what was owing to the Bank; - Mr Prestia does not know exactly how much was owing by Nationwide to the Bank when Nationwide was wound up. It could have been $500,000. It could have been more (T p 7). In context, it may be that answer should be construed as if it said that in letters from the Bank it claimed $500,000. - Mr Prestia "wouldn't have the ability to pay back the amounts of money that I owed the Bank" if his employment activities were restricted to acting as a produce buyer, as distinct from a broker. 16 On 1 June 2000 Nationwide was placed into liquidation on the application of ANZ Bank.

The indebtedness of Mr Prestia 17 In the ordinary case, I would accept Ms White's affidavits as proving the matters stated in (inter alia) par 1 of the petition, and as proving that the debt on which ANZ Bank relies is still owing: see s 52(1)(a) and (c). On the pleadings in the Supreme Court proceedings, an issue for determination in those proceedings is whether Mr Prestia is indebted to the ANZ Bank. Counsel for Mr Prestia contends that, for that reason, I should not determine the issue of indebtedness in these proceedings, hence I could not be satisfied that the matters referred to in s 52(1)(a) and (c), or alternatively, the fact that those proceedings are pending constitutes "other sufficient cause" within the meaning of s 52(2)(b) why a sequestration order ought not to be made. 18 The machinery by which one petitioner can be substituted for another enables a creditor to seek a sequestration order even though the debt which it claims has not been established by judgment. I readily accept that this Court is a court of bankruptcy, and not a court for determination of actions in debt: Vee H Aviation Pty Ltd v BP Australia Limited (1995) 58 FCR 73 at 76: Kostezky, ex parte Milder Elfman Szmerling Krycer Pty (1996) 67 FCR 101 at 106. 19 However, where, as here, there is evidence in conventional form as to the existence of a debt of $568,782.59, it is incumbent on Mr Prestia to establish that there is a triable issue as to his indebtedness which would justify the dismissal of the petition, or its adjournment pending the resolution of the issue in the Supreme Court. As the petition expires on 28 June 2001, adjournment of the petition to enable finalisation of the Supreme Court proceedings is not a viable option. 20 The evidence of indebtedness is not challenged by cross-examination nor was it contradicted by evidence of Mr Prestia. Whilst Mr Prestia's defence in the Supreme Court proceedings denies "service of the demand", the issue is whether the demand was posted, rather than whether it was received. There is hearsay evidence of posting in Ms White's affidavit of 21 February 2000, (an affidavit on which both counsel sought to rely for different purposes), and there are business records of the ANZ Bank which establish the posting of a demand by express post on 29 September 1999. Those records form part of Exhibit A which was tendered by counsel for Mr Prestia. In those circumstances, and taking into account the evidence given by Mr Prestia in cross-examination which I have summarised above, I am not satisfied that there is a triable issue as to Mr Prestia's indebtedness to the ANZ Bank which would justify dismissal of the petition or its adjournment until resolution of the Supreme Court proceedings. 21 The only matter which counsel for Mr Prestia pointed to as going in the opposite direction was the absence of bank statements from Exhibit A, and the absence from that Exhibit of other records as to Nationwide's indebtedness to the Bank. I do not know what records exist within the ANZ Bank on this matter, and if there are any such records, why they were not produced in response to the subpoena. Ms White was not cross-examined on the Bank's response to the subpoena. Given Mr Prestia's evidence in cross-examination, in my view, the reliance which counsel placed upon Exhibit A was exaggerated. The response to the subpoena, or lack of it, does not demonstrate a triable issue.

Other sufficient cause 22 The pending Supreme Court proceedings were relied upon as constituting "other sufficient cause" as well as on the issue of indebtedness. For the same reasons as earlier given, the pendency of those proceedings does not enliven the operation of s 52(2)(b). It may be that the making of a sequestration order would have a prejudicial effect on Mr Prestia's ability to defend the claims made against him in those proceedings, but given my conclusion as to the absence of the triable issue on that question, that cannot constitute "other sufficient cause".

Prejudice to Mrs Prestia 23 It was submitted that the making of a sequestration order would have a prejudicial effect on Mrs Prestia's position. If a sequestration order is made, Mr Prestia's interest in the house at Kemps Creek will vest in his trustee in bankruptcy, and, as a result of s 58(1) of the Act, the joint tenancy is severed such that thereafter the property is held for Mrs Prestia and the Trustee as tenants in common: see Sistrom v Urh (1992) 40 FCR 550. 24 I accept for present purposes that the consequences of making a sequestration order so far as the title to the property is concerned will be as counsel for Mr Prestia contends. However, the fact that the making of a sequestration order may have adverse consequences so far as a wife is concerned, is not a reason for failing to make such an order if it is otherwise appropriate. In any event, the debt to the first mortgagee substantially exceeds the market value of the Mamre Road property, hence Mrs Prestia has no equity in that property.

Futility 25 Apart from his interest in the Kemps Creek property, Mr Prestia's only assets are a motor vehicle whose current market value is estimated at $10,000, and a debt owed by Nationwide for an amount of approximately $200,000. For the last eighteen months Mr Prestia has been working as a food and produce buyer. He says that he basically worked on a wage of the order of $50,000-$100,000 per annum. 26 It was submitted by counsel for Mr Prestia that there are no assets which would be available if a sequestration order were made, and that the only result of making an order would be a waste of money in costs. As the Court has a discretion it should be exercised against the making of an order: In Re Betts (1897) 1 QB 50 at 52. 27 There are at least three answers to this contention. First, the discharge of the debt owing to the Owners of Strata Plan No 53267 after the presentation of its petition is prima facie preferential in character, and might be recouped by a trustee. Second, it has not been established that Nationwide's debt to Mr Prestia is valueless. The claim which it is asserted that Nationwide has against Franklins, which is referred to later in these reasons, suggests that the debt may have considerable value. Third, whilst precise calculations have not been undertaken, the fact that Mr Prestia is in receipt of income to the extent of $50,000-$100,000 per annum suggests that it is likely that if made bankrupt, Mr Prestia would be exposed to a liability to pay contributions in terms of Part VI - Div 4B - Sub-division D of the Act. For these reasons, I reject the claim that a sequestration order ought not to be made because it is an exercise in futility.

Loss of a commercial opportunity 28 As earlier indicated, for the last eighteen months Mr Prestia has been engaged as a produce buyer - a person who purchases produce in the marketplace for others. As such he is not required to be licensed. If he were to carry on business as a produce broker he would require a licence under the Farm Produce Act 1983 (NSW). A person is disqualified from holding such a licence if he is an undischarged bankrupt. 29 Mr Prestia says that he was recently approached by a South African company with a view to forming a joint venture to supply fresh produce to stores which the company recently acquired from Franklins. It is only possible for Mr Prestia to provide his part of the proposed joint venture if he can act as a broker, which he cannot do unless he has an appropriate licence under the Farm Produce Act. The fact that this opportunity would be lost if a sequestration order were to be made is put forward as a reason why the discretion not to make an order should be exercised in favour of Mr Prestia. 30 It is clear that Mr Prestia is insolvent. He does not assert to the contrary. The general policy of the bankruptcy law is that people who are insolvent should not carry on business, but should have their affairs administered in bankruptcy. In my view, given Mr Prestia's insolvency, it would not be appropriate to dismiss the petition because of the prospect of a joint venture with the South African company which, in any event, is in an embryonic state. If that proposal proceeds to a point where a business plan can be meaningfully prepared, then Mr Prestia can make a proposal to his creditors for a composition or a scheme of arrangement under Division 6 of Part IV of the Act.

Nationwide's claim against Franklins 31 The liquidator of Nationwide has secured funding to enable the institution of legal proceedings against Franklins based upon or arising out of the termination of its trading relationship with Nationwide. There is some evidence that the quantum of the claim could be as high as $4M if successful. The proceedings have not yet been instituted although a form of Statement of Claim has been prepared. The claim is one of some complexity which is likely to take some time to resolve. The claim is in the nature of collateral litigation which, if it is successful, may result in the discharge of Nationwide's liability to the ANZ Bank. If Nationwide's debt were discharged then Mr Prestia's secondary liability to the ANZ Bank would also be extinguished. I am prepared to assume for present purposes that this claim is one which is genuinely made and which has prospects of success. The making of a sequestration order would not prevent the continued prosecution of that litigation. 32 In Ling v Enrobook Pty Ltd (1997) 74 FCR 19 a Full Court approved a statement by Lehane J that, as a general proposition, there is no apparent reason why a petitioning creditor should not be entitled to have a sequestration order made, if the requirements of s 52 are otherwise satisfied, simply because the debtor may have a counter claim or cross demand against some other creditor. The Full Court said: "The above authorities do not, in our view, support the appellant's contention that the courts recognise a public interest in allowing a debtor to prosecute litigation commenced by the debtor. The public interest recognised by such authorities is that which, in broad terms, is reflected also in s 40(1)(g) of the Act; that is, that a sequestration order ought only to be made on the basis of an indebtedness which is not counterbalanced by a claim by the debtor against the petitioning creditor. Such authorities provide no comfort to a debtor who asserts a claim, not against his or her creditor, but against a third party. The authorities also show that satisfaction that the debtor is well advanced with litigation likely to result in the debtor being in a position to pay his or her debts may well provide a basis for a finding that there is a 'sufficient cause' for a sequestration order not to be made; see for example, Maddestra v Penfolds Wines Pty Ltd (1993) 44 FCR 303. But the authorities do not suggest that it is in the public interest to allow insolvent debtors to prosecute litigation generally. They only recognise that it is not in the public interest for a debtor to be forced into bankruptcy by reason of a state of insolvency likely to be of only short duration." 33 In the present case, the foreshadowed litigation would not be instituted by Mr Prestia, but by Nationwide. There is no foundation for a conclusion that by reason of the foreshadowed litigation, the bankruptcy would be of short duration only. Accordingly, it does not constitute "other sufficient cause".

An undertaking 34 Finally, Mr Prestia proffered an undertaking to the Court in the form of Exhibit E. That undertaking was not accepted by ANZ Bank. It is not appropriate for the Court to accept an undertaking in the terms proffered by a party who is insolvent. The offer of the undertaking does not provide sufficient cause for dismissal of the petition.

Orders 35 I order that: 1. a sequestration order be made against the estate of Mr Prestia; 2. the petitioner's costs be taxed and paid in accordance with the Act. I certify that the preceding thirty-five (35) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Hely.