Affidavit of Geoffrey Anthony Shannon sworn on 11 April 2014
98 In the statement of affairs he verified in February 2013 for the purposes of sequestration proceedings in the Federal Circuit Court, Mr Shannon stated that he had net assets of $2,909,000 and gross assets of about $6.2 million, with liabilities of $3,287,000. In his May 2013 statement of affairs prepared for the purposes of the Part X meeting, Mr Shannon ascribed negligible worth to his assets and recorded his creditors at $26,739,922. In neither statement did he make any reference to any liabilities to the CBA.
99 In his further affidavit, Mr Shannon endeavours at some length to explain the discrepancy and also, in respect of the Part X statement of affairs, his failure to disclose a disposal within the last five years of three assets. One of these was a cause of action that Mr Shannon and a company then controlled by him, 33 Electra Pty Limited (later placed in liquidation) (33 Electra) had transferred to Mr McClelland for an alleged consideration of $1.5 million.
100 Of course, inferentially, one reason for the discrepancy might be that the two statements of affairs were prepared for different reasons. In respect of the sequestration proceeding in the Federal Circuit Court, it was in his interest for Mr Shannon to present himself as solvent. For the purposes of the Part X meeting, it was in his interest to maximise the worth of friendly creditors so as to signal the prospect that they would control the vote at the creditors meeting in respect of the draft personal insolvency agreement.
101 It is not necessary to reach a concluded view on whether such an inference ought to be drawn and I deliberately refrain from so doing. As it is, because the appeal must in any event be dismissed it is not necessary to do that. However, what I do observe of Mr Shannon's further affidavit is that, for all of its explanations, what remains is a serious concern, voiced first by Mr Robson in his report to the creditor's meeting, as to the availability and reliability of information concerning Mr Shannon's financial affairs. Mr Robson was, in my opinion, right to voice such a concern and, despite all that has passed since, that concern remains. Mr Robson sought further time to investigate the position. That was denied to him by a vote at the creditor's meeting. A trustee in bankruptcy cannot be so denied and will have all of the powers conferred by the Act to call in aid.
102 The further and surely consequential course of events was accurately related by the learned primary judge in this way (at [11] to [16]):
11 A lot happened on 21 May 2013. First, the hearing of the Bank's proceedings against the debtor, 33 Electra, and the second of his companies, C2C Investments Pty Limited, began before Sackar J. Secondly, Davies J in the Supreme Court gave judgment in favour of the plaintiffs in two proceedings that had been commenced the previous month: Shannon v Shannon [2013] NSWSC 608. The debtor's father was the plaintiff in one of those proceedings in which he claimed $12,885,383 and interest. In the second, a company of his father and mother, D & W Shannon Pty Limited (DWS), claimed $8,916,052.74 plus interest. The father's proceedings had been commenced on 16 April 2013, and DWS's on 22 April 2013 and both were, to say the least, unusual. The debtor was most diligent in filing his defences. The defences were verified not by the debtor but by Mr McClelland on 29 April 2013, contrary to the Uniform Civil Procedure Rules in force in New South Wales Courts. Those defences admitted the loans claimed, the debtor's failures to repay but pleaded that they were not repayable because, in the father's case, they were gifts, and, in DWS's case, because the interest rate of 20% was allegedly a penalty. In addition, Mr McClelland, as the debtor's solicitor, signed certificates for those defences under s 347 of the Legal Profession Act 2004 (NSW) that Davies J described in his reasons, were in a form (at [7]):
"… so extraordinary it first prompted a telephone call from the solicitor for the Plaintiff to the solicitor for the Defendant, Mr McClelland, where the solicitor for the Plaintiff asked Mr McClelland, 'Did you mean to sign the certificate as it reads or is there a typographical error…?'"
12 The certificates read that Mr McClelland certified under s 347 that there were "reasonable grounds for believing on the basis of provable facts and a reasonably arguable view of the law, that the defence to the claim for damages in these proceedings has no reasonable prospects of success" (his Honour's emphasis). That is, Mr McClelland, on his client's behalf, had verified a defence which Mr McClelland viewed had no prospects of success.
13 Davies J recorded that, in those circumstances, and because the debtor's father was elderly and in ill health, motions had been brought seeking urgent summary judgment for the claims in each statement of claim. He said that the debtor had appeared by his solicitor who offered no opposition to the matters. His Honour entered judgments for the full amounts claimed on the same day having given ex tempore reasons. In consequence, the debtor's indebtedness to his parents increased by about $19 million above what he had sworn was his indebtedness to them on 5 February 2013. There was no explanation before me of any reason for that change.
14 The third thing that happened on 21 May 2013, was the debtor executed the draft personal insolvency agreement as a deed and completed his statement of affairs. The latter included the very recent judgment debts owed to his father and DWS entered by Davies J.
15 On 3 June 2013, after the Bank learnt of the judgments in favour of the debtor's father and DWS in late May 2013, it applied, in the Supreme Court proceedings to set those judgments aside as not having been obtained in good faith. Subsequently, Rothman J in the Supreme Court ordered that the Bank bring separate proceedings to make that challenge, and it promptly did so, filing a statement of claim on 17 July 2013 that explained the bases on which that claim was made
16 The Bank asserted, in effect, that all the alleged debts were statute barred at the time at which the Supreme Court proceedings were commenced by each of the debtor's father and DWS, the loan agreements were all shams and the debtor's parents, on behalf of DWS, had applied on 16 December 2011 to the Australian Securities and Investments Commission for DWS to be deregistered with the father and mother declaring that, as at 16 December 2011, its assets were less than $1000. The Bank's statement of claim also alleged that the first loan agreement on which the father claimed in his proceedings was for a principal sum of $150,000 entered into on 1 July 1995, providing for payments of $3,750 per month for interest at only 10% per annum for two years with the principal repayable by 30 September 2005. The purpose of that loan was said to be for land supplied for the family home at 8 Fleeting Court, Tuncurry. (Curiously, that Bank alleged there was no "Fleeting Court" at Tuncurry. That is one of the properties the Bank alleged that the debtor failed to disclose in his statement of affairs of 21 May 2013.) Clause 6.3 of that loan agreement referred to Goods and Services Tax and to a 1999 Commonwealth statute relating to that tax, despite the fact that that tax only commenced to be payable on 1 July 2000 and was not provided for in any legislation in 1995, being the time of the alleged agreement. Suffice to say that the claim by the Bank to challenge the default judgments is not colourable.
103 The two New South Wales Supreme Court proceedings commenced against Mr Shannon in April 2013, referred to in the passage quoted, must, inferentially, have been commenced while judgment in the Federal Circuit Court in respect of the creditor's petition was reserved. Their unusual nature, remarked upon by the learned primary judge, is only underscored when regard is had to the medical evidence concerning Mr Shannon's father which was led in support of the adjournment application. A consultant in geriatric medicine (Dr Guthridge, report of 4 December 2013 in respect of examination on 2 December 2013) described him as "an 83 year old man who has a history of cognitive decline". It is stated in the report that Mr Shannon's father's wife has his power of attorney and has "managed his finances for the last two years." Mr Shannon and his mother are recorded as having accompanied the father to the examination and to have assisted in the provision of the history recorded in the report. A medical certificate from the father's treating general practitioner (Dr Abm Shahidullah) of 11 December 2013 refers to "significant mental problems with cognitive decline requiring frequent hospital admissions".
104 The debts claimed by Mr Shannon's father and DWS were, in total, about $21.8 million. That claimed total represented almost half of the total debts submitted to proof for the purposes of the Part X meeting. These same related party debts provided the overwhelming support by value by which the special resolution in favour of the acceptance of the personal insolvency agreement was carried by the vote of debts admitted to proof. Neither a trustee in bankruptcy nor this Court is bound by the judgments obtained against Mr Shannon by related party creditors in the New South Wales Supreme Court. As the Full Court stated in Hingston v Westpac Banking Corporation (2012) 200 FCR 493 at [91], of the factors which the Court takes into account in deciding whether an alternative to bankruptcy offered by the Act should be set aside as not in the interests of all creditors and whether further investigation under the auspices of bankruptcy is warranted is "whether some particular creditors may have dominated the vote in circumstances where there may be questions about the relationship between the debtor and those creditors". When the impact of the related party debts is taken into account and all of the reasons mentioned by the learned primary judge in the passage quoted for regarding the proceedings in respect of them as unusual and by us as underscoring that view, the further evidence does nothing to make it likely that a conclusion that these are debts which warrant investigation by a trustee in bankruptcy would be displaced.