Reaper v Baycorp Collections PDL

REASONS FOR JUDGMENT 1 Mr Brett Reaper, who appeared in person, applied for the annulment of his bankruptcy under s 153B of the Bankruptcy Act 1966 (Cth). The basis of the bankruptcy was a judgment debt on an amount due to Westpac Banking Corporation ("Westpac") from Mr Reaper which had been assigned to Baycorp Collections PDL (Australia) Pty Ltd ("Baycorp"). Mr Reaper did not contest, and did not establish, that the assignment was ineffective but contended that the debt was not due by him personally but had been due by a company of which he had been a director which had conducted a business of landscaping. Judgment was entered against Mr Reaper on 27 October 2011 in contested proceedings in the Magistrates' Court of Victoria for $22,552.40. On 15 May 2012 the Magistrates' Court dismissed with costs Mr Reaper's contested application for a rehearing. The creditor's petition against Mr Reaper was issued on 25 July 2012. 2 Section 153B permits the Court to annul a bankruptcy if satisfied that a sequestration order ought not to have been made. The section provides: (1) If the Court is satisfied that a sequestration order ought not to have been made or, in the case of a debtor's petition, that the petition ought not to have been presented or ought not to have been accepted by the Official Receiver, the Court may make an order annulling the bankruptcy. An order "ought" not to have been made if the circumstances did not justify making the order: Re Frank; Ex parte Piliszky (1987) 16 FCR 396. In this case the order was made in reliance upon a judgment debt made in contested proceedings in which Mr Reaper was represented by a solicitor and counsel. The Court hearing an application for annulment may, however, go behind the judgment (Pollock v Deputy Commissioner of Taxation (1994) 94 ATC 4148), but it is for Mr Reaper to demonstrate that there is a bona fide question as to whether he was in truth and reality indebted to Baycorp upon the assignment of the debt from Westpac: see Olivieri v Stafford (1989) 24 FCR 413. The fact that Mr Reaper had failed in his application to set aside the default judgment does not preclude the Court from going behind the judgment if Mr Reaper is able to discharge his burden: see Re Marshall; Ex parte James Hardie & Co Pty Ltd (unreported, Pincus J, 8 July 1985). 3 The debt in question arose from the use of a credit card issued by Westpac numbered 4564 7270 0170 3493 ("CC93") which, Mr Reaper contended was not due on his account but was due by a company. The identity of that company, until the hearing of his application, was said to be Urban Habitat Landscaping and Paving Pty Ltd ("Urban Habitat") of which he had been the director and which had conducted a landscaping business. Urban Habitat went into liquidation and a report as to its affairs was lodged on 31 July 2006 which was signed by Mr Reaper. The report included a list of creditors which did not disclose, contrary to Mr Reaper's contention in these proceedings, any debt due by it on the credit card. Indeed, the credit card continued to be used after the date of liquidation of Urban Habitat, with the last transactions on the card being on 15 November 2007. 4 Mr Reaper's claim about CC93 not being his personal credit card was based upon his evidence that in July 2002 he approached Westpac with the intention of opening a secondary company chequing account for the company. Mr Reaper said that he was advised by a Westpac representative that a corporate credit card account was more appropriate in light of the company's banking history, and Mr Reaper said that he had accepted Westpac's advice and completed an application then and there with the assistance of Westpac's employees. No application was tendered in evidence and none emerged from the issue of subpoenas. 5 The account upon which the debt accrued, and upon which the judgment was subsequently made, was, as I have said, numbered 4564 7270 0170 3493. Critical to Mr Reaper's evidence was that this account, CC93, was approved by Westpac in July 2002 as an account for the company rather than for him. Indeed, his evidence was that at no time during the CC93 application process, or until the company ceased trading, had he been informed by Westpac that he could personally be liable for a default and that had Westpac informed him during the process of the possibility of personal liability by him, that he would have insisted on the secondary company chequing account as initially intended. This evidence was in part supported by his wife, Ms Sharon Fisher, who had been the office manager in the exclusive employ of Urban Habitat during the period in question. Ms Fisher gave evidence, consistent with that of Mr Reaper, of her recollection of events in July 2002 and of her involvement in an application process for accounts to be linked with the company. 6 The evidence of Mr Reaper and Ms Fisher, however, is inconsistent with the documentary evidence of Westpac and, significantly, does not fit within the time frame established by the documentary evidence. That is not to say that there were no discussions with Westpac for accounts on behalf of the company but that the evidence given by Mr Reaper and Ms Fisher of their recollection of events which occurred nearly 12 years before they gave their evidence could not be about the relevant account, namely account CC93, because it had been created before the date (2002) they recalled and in circumstances that reveal that their recollection is mistaken. The fact was that Mr Reaper had a pre-existing credit card numbered 4564 7170 0164 1066 (referred to in the material as account "CC66") which was replaced in 2001, not in 2002, with account CC93. The statements of those credit cards showed that the latter was a continuation of the former. 7 A Mr Luke Hanford, an employee of Westpac, inspected the business records of Westpac and explained that CC66 had been cancelled on or about 1 July 2001 and that CC93 had been issued in replacement. Both credit cards were issued in respect of the one account in Mr Reaper's name. Copies of the statements of account for both credit cards were tendered in evidence showing that CC66, in Mr Reaper's personal name, ended on 5 July 2001 with a debit balance of $2,735.06. The statement of account for CC93 showed that it commenced on 6 July 2001 and that it had an opening debit balance of $2,735.06. That account was also in Mr Reaper's name. It is clear, therefore, that CC93 was a replacement for CC66 as contended by Baycorp. Mr Hanford gave as a reason for the replacement of the credit card that Westpac had changed Mr Reaper's account from a Global Rewards Westpac Visa Gold account to a Westpac Altitude Gold Card account. Mr Reaper contested that and pointed to the fact that CC93 was not described as an "Altitude Gold" account in the statements tendered in evidence. It is true that the statements for CC93 do not use the word "Altitude", but it is clear, and I accept, that CC93 simply replaced CC66 and that the statements of CC93 tendered in evidence were those referred to by Mr Hanford as the replacement "Westpac Altitude Gold Card" account for CC66. I also decline to make the inference Mr Reaper urged upon me, namely, that there must have been a new application for CC93 like the application which had been made when he had applied for CC66. The non-existence of an application for CC93, as distinct from an inability to find one, is the more likely fact if, as I accept, CC93 was issued by Westpac in replacement of an existing account. 8 Mr Reaper has, therefore, not established that the debt in the judgment was not due by him and that the sequestration order ought not to have been made. None of the documents relating to credit card CC93 had any reference to Urban Habitat as claimed by Mr Reaper. The primary documents in relation to the credit cards recorded only Mr Reaper's name. Urban Habitat was incorporated on 21 December 1999 and CC66 (which was substituted by account CC93) was opened in 1998. On 26 July 1998 Mr Reaper completed an application form for the credit card (subsequently issued as CC66) which was approved by Westpac on 5 August 1998 with a limit of $2,500.00. There was no suggestion that account CC66 had previously been other than an account for Mr Reaper personally. The report as to the affairs of Urban Habitat signed by Mr Reaper and lodged in liquidation of the company did not disclose the amounts due on credit card account CC93 as a debt of the company and transactions on credit card CC93 were made after the date of liquidation of Urban Habitat. There was no evidence of any person, other than Mr Reaper, having a liability in respect of credit card CC93. The statements of account for both CC66 and CC93 were sent to Mr Reaper personally at his address. 9 An attempt was made by Mr Reaper at the hearing of his application to change the identity of the company which he claimed was responsible for CC93. At the hearing of his application he sought to rely upon his assertion that the company responsible for CC93 was Urban Domain Homes Pty Ltd ("Urban Domain") rather than Urban Habitat. The solicitor appearing for Baycorp objected to Mr Reaper relying upon this new evidence as it came only at the hearing of the application and had no other foundation than Mr Reaper's assertion from the bar table and such limited inference as might be drawn from the fact that it may have been the source of some payments of money which had been due on CC93. I do not accept the evidence of Mr Reaper that CC93 was the account of Urban Domain. His evidence from the bar table is inconsistent with the evidence he had previously filed in the proceeding in this Court as well as the evidence filed in the Magistrates' Court. There was no suggestion in any of the material which had previously been filed to suggest that the company responsible for account CC93 was a company other than Urban Habitat. However, even accepting the substitution of Urban Domain for Urban Habitat in the evidence relied upon by Mr Reaper, the evidence would still not support the conclusion that CC93 was to have been in the name of the company rather than Mr Reaper. Both companies were created after Mr Reaper opened, in 1998, CC66 which Westpac changed in 2001 to CC93. 10 Mr Reaper has also not substantiated his claim of being solvent. The onus of satisfying the Court of the ability to pay one's debts falls upon the debtor: International Alpaca Management Pty Ltd v Ensor [1999] FCA 72 per Katz J. A statement of affairs was produced by him in the week before the hearing of his application. It revealed an annual income from a disability pension of $16,224.00 in the next 12 months and a tax debt of $14,890.35. Mr Reaper described the tax debt in the statement he prepared as being "under review" but the evidence filed on behalf of the respondents, including correspondence from the Tax Office, indicated that the Tax Office maintains that the amounts are owing, although they might not seek to recover the debt in view of Mr Reaper's bankruptcy. His Trustee in Bankruptcy, Mr Petr Vrsecky, exhibited a proof of debt from the Australian Tax Office for an amount of $34,819.27 rather than the lesser amount Mr Reaper had listed in his statement. The evidence of Mr Vrsecky, in contrast to Mr Reaper's statement of affairs, also identifies debts due to Mr Vrsecky for costs, expenses and legal fees to date in excess of $50,000 and disbursements in excess of $2,000. 11 The statement of affairs prepared by Mr Reaper, and the evidence of his Trustee, reveals the existence of a residential house owned jointly with Ms Fisher on which some $295,000 was owed to Crucis Pty Ltd as mortgagee. Mr Vrsecky has applied for partition of the property but the asset was not otherwise the subject of evidence by Mr Reaper, or Ms Fisher, concerning its sale for the purpose of enabling Mr Reaper to pay his debts as and when they fall due. Even if Mr Reaper had relied upon his equity in the property in establishing solvency, an asset cannot be taken into account in assessing solvency without reference to the time it would take to effect realisation and produce cash: see Sandell v Porter (1966) 115 CLR 666 at 670; Hall v Poolman (2007) 65 ACSR 123 at 163 [187]. Realisable property can only be taken into account "if that property is in such a position as to title and otherwise that it could be realised in time to meet the indebtedness as the claims mature": Bank of Australasia v Hall (1907) 4 CLR 1514 at 1543. There is nothing in the material to suggest that Mr Reaper has taken any steps or made any arrangements for the residential house to be realised to meet his debts. 12 Accordingly the application will be dismissed. I certify that the preceding twelve (12) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Pagone.