StockCo Agricapital Pty Limited, in the matter of Webb (Bankrupt) v Webb

The Facts 6 The secured creditor relies on five affidavits. Those affidavits are as follows: (1) Two affidavits of Adam Preston Young, solicitor, sworn on 19 February 2024 and 12 March 2024 respectively. Mr Young is the solicitor for the secured creditor; (2) An affidavit of Michelle Jane Cameron affirmed on 19 February 2024. Ms Cameron is the Head of Credit in the employ of the secured creditor; (3) An affidavit of Diandra Rose Ciacciarelli sworn on 18 March 2024. Ms Ciacciarelli is an associate employed by the solicitors for the secured creditor; and (4) An affidavit of Nathan Karl Schwarz who, with Robert Scott Woods, was appointed joint and several bankruptcy trustees of the estates of the debtors. 7 Before the first return date on the secured creditor's application, the trustees in bankruptcy were served with the application, as was the supporting creditor, Nutrien Ag Solutions Limited (Nutrien), and the solicitors for the debtors themselves. Those solicitors for the debtors had appeared for the debtors in October 2023 and had said the petition was opposed on the ground that the debtors were in the process of obtaining a loan and considered themselves to be solvent. The day before the sequestration order was made, the male debtor filed an affidavit wherein he consented to the orders sought by the secured creditor, but asked "the proceedings be stayed for a period of (fifteen) 15 days so that I can pay plaintiffs debt owed". 8 In the two hearings I held in the matter, the trustees, or at least one of them, was present, but did not seek to appear. Nutrien, the supporting creditor, observed the proceedings and neither of the debtors appeared. 9 Between the first hearing of the secured creditor's application on 19 February 2024 and the second hearing on 20 March 2024, a number of events occurred. The solicitors for the secured creditor sent the documents relevant to this application to 14 creditors of the debtors. Those creditors were ascertained by reference to the certificates of title of the two properties of the debtors and by seeking advice as to the known creditors from the trustees in bankruptcy. 10 The trustees in bankruptcy were also active in seeking to advise the creditors known to them of the secured creditor's application and the hearing date before this Court. 11 None of the creditors advised of the application and the hearing date sought to appear before this Court. 12 The secured creditor and the debtors entered into the MLA in August 2020. Under the agreement, the debtors as agents for the secured creditor bought and sold livestock. They incurred debts owed to the secured creditor. Clause 25 of the MLA gave the secured creditor security over livestock for the due performance by the debtors of their obligations under the agreement. There was at one point in this proceeding a question as to whether there was any livestock to which the charge may attach, but in his second affidavit, Mr Young said that the secured creditor is unable to place any security value on any remaining livestock as it was and is not able to ascertain whether any such livestock remains in existence. That conclusion was in a context in which the secured creditor has made a number of efforts to ascertain the position with respect to livestock and those efforts were unsuccessful. The secured creditor believes, but cannot prove, that such livestock as may have existed were sold by the debtors to another creditor. At all events, counsel for the secured creditor told me at the second hearing that the secured creditor does not assert a security interest in livestock. Clause 26 of the MLA gave the secured creditor security by way of a charge over real property. Clause 26.1 is in the following terms: You charge the Real Property to us as security for the due performance of all of your obligations under this Agreement at any time owed to us. 13 The MLA was followed by two Supplementary Agreements, one on 8 September 2020 and the other on 4 November 2020. It is not necessary to go into the details of these agreements. 14 On 16 March 2022, the secured creditor wrote to the debtors advising them that they were in breach of the MLA in that they had not made all payments due on time and in accordance with the MLA. The secured creditor demanded the payment of the Purchase Price as defined in the MLA plus finance costs and default interest. The amount claimed was $303,943.43 plus GST if any. The secured creditor served a final notice under the seal of the Supreme, District and Magistrates Court on the debtors on or about 10 November 2022. The debtors did not comply with the final notice. 15 The secured creditor issued a claim in the District Court of South Australia claiming the total amount of $370,088.23 on or about 27 January 2023 and obtained a default judgment for that amount and costs of $2,920.17 on 11 April 2023. The secured creditor issued a Bankruptcy Notice relying on the default judgment on 27 June 2023. 16 The secured creditor issued its Creditor's Petition on 22 August 2023. Nutrien appeared as a supporting creditor. 17 A Registrar of this Court made an order on 22 November 2023 that the estate of Scott Daniel Webb and Aliza Maria Webb be sequestrated under the Act. All proceedings under the sequestration order were stayed until 11 December 2023 at the request of the debtors who, as I have said, agreed to the orders subject to a request that they be stayed for 15 days so that the secured creditor's debt could be paid. 18 The two pieces of land previously referred to were a property at Victor Harbor which was subject to a prior mortgage to Perpetual Corporate Trust Ltd and a property at Tiddy Widdy which was subject to a prior mortgage to Australia and New Zealand Banking Group Limited. The secured creditor was aware of the prior registered mortgages. The secured creditor through a different firm of solicitors lodged a caveat over the properties on or about 8 July 2022. 19 Mr Young deposed that the net value of its security in the Victor Harbor and Tiddy Widdy land was in the sum of $359,000. The net valuation of the two properties is in the sum of $1.214 million taking into account an estimate of the likely commission, selling costs and other legal fees and the estimate of the prior registered security interests in the two properties is $855,000 inclusive of interest and costs. As Mr Young notes in his first affidavit, this leaves an unsecured portion of the secured creditor's debt in the amount of $14,000, or $21,000 if interest is added to the secured creditor's judgment debt. A valuation of each of the two properties are annexed to Mr Young's second affidavit. 20 Mr Young provides the following explanation with respect to the error in the Creditor's Petition: 10. … At the time the Creditor's Petition was prepared, I did not identify that paragraph 2 of the Creditor's Petition had been incorrectly drafted as referring to the Applicant as not having any security over the Respondent Debtors' property. This was an inadvertent drafting error on my part. 11. I was aware that the Applicant had lodged two caveats over real property owned by the Respondent Debtors prior to the commencement of the Applicant's enforcement proceedings. The caveats were registered by another firm of solicitors and were based on a charging clause contained within clause 26.1 of the Master Livestock Agreement. At the time of preparing the Creditor's Petition I was aware that the Applicant held these securities. The Applicant now seeks to amend the Creditor's Petition to regularise the error in the Creditor's Petition and the affidavit in support. … 16. If I had realised the error in the Creditor's Petition before filing it, I would have ensured that it referenced the Applicant's estimate of the value of the security over the Victor Harbor property and the Tiddy Widdy property. … 21 Ms Cameron affirmed an affidavit verifying the Creditor's Petition in which she said that she had access to the books and records of the secured creditor and was authorised to make the affidavit on the secured creditor's behalf. She deposed to the fact that the statements made in paras 1, 2 and 3 of the Creditor's Petition were within her own knowledge true. 22 Ms Cameron addressed this matter in her affidavit in support of the present application. She said that on 22 August 2023, she received from the secured creditor's solicitors a draft Creditor's Petition and supporting affidavit. Her explanation for the error in the Creditor's Petition was as follows: 6. At the time I affirmed the affidavit in support of the Creditor's Petition, I relied on the accuracy of the affidavit prepared by the Applicant's solicitors. Although I was aware that the Applicant had lodged caveats in respect of properties owned by the Respondent Debtors, I did not identify at the time of affirming the affidavit in support of the Creditor's Petition that I was deposing to the Applicant as not holding such security over the Respondent Debtors. This was an inadvertent error on my part. Paragraph 2 of the Creditor's Petition should have read in such a manner that the Applicant was only claiming the unsecured portion of its debt. 23 Ms Cameron also affirmed to her belief as to the amount owing to the prior registered mortgagees and the estimated value of the two pieces of land. She also deposed that the shortfall with respect to the secured creditor's judgment debt was at least $14,000 which increases to $21,000 if interest owed to the secured creditor is included since judgment to the date of the Creditor's Petition.

Analysis 24 This is an application to amend a Creditor's Petition after a sequestration order was made. The secured creditor did not set out in the petition particulars of its security as required by s 44(4) of the Act. The petition was presented on the basis that the secured creditor was a creditor for the full amount of its debt whereas by reason of s 44(2) of the Act, it was a creditor only to the extent its debt exceeded the value of its security. The secured creditor did not include in the petition a statement that it is willing to surrender its security for the benefit of creditors generally in the event of a sequestration order being made against the debtors. In fact, the secured creditor does not wish to surrender its security and does not, by its amendment, seek to bring itself within the terms of s 44(3) of the Act. 25 This Court has the power to allow an amendment in the terms sought by the secured creditor by reason of s 33(1)(b) of the Act. The matters which are relevant to the exercise of the power in the circumstances of this case are the circumstances in which the error in the petition came to be made, whether the amendment, if allowed, provides a basis for the sequestration order previously made, whether the secured creditor has acted in a timely fashion after discovering the error and whether there will be prejudice to any third parties if the amendment is allowed. 26 Mr Young drafted the petition. He was aware prior to the commencement of the secured creditor's enforcement proceedings that the secured creditor held securities over the debtors' property and that a caveat had been lodged by the secured creditor's solicitors over the two pieces of land based on the charge in the MLA. The caveat was lodged in July 2022 by a different firm of solicitors from that acting for the secured creditor in connection with the Creditor's Petition. Mr Young said that at the time he prepared the petition, he did not identify that para 2 of the petition, which is the statement that the secured creditor did not hold security over the property of the debtors, was "incorrectly drafted" and an "inadvertent drafting error" on his part. It seems to me that it is difficult to describe the error as a drafting error, except in the most general sense, but I do accept that the error was inadvertent, either because Mr Young used a precedent and failed to check it properly, or because he failed to link the charging clause with the statement in para 2 of the petition at the time he was drafting the petition, or for some other reason. 27 The petition, including the statement in para 2, was verified by Ms Cameron who, as I have said, is the secured creditor's Head of Credit. Ms Cameron described her error as inadvertent. Paragraph 2 of the petition should have referred only to the unsecured portion of the debt. Ms Cameron was aware of the caveat, but she relied on the accuracy of the affidavit prepared by the secured creditor's solicitors. Again, this should not have happened, but I accept that the error was inadvertent. 28 There is a basis for the sequestration order if the amendment is allowed. Both Mr Young and Ms Cameron depose to the value of the two pieces of land being approximately $1,214,000 and the amount owing to the prior registered mortgages as being approximately $855,000 inclusive of interest and costs, leaving an amount of $359,000. The value of the two pieces of land is based on valuations annexed to Mr Young's affidavit. The judgment debt is in the amount of $373,008.40. If interest between the date of the judgment debt and the issue of the Creditor's Petition is added, then according to Mr Young's first affidavit, there is an additional amount owing of at least $7,000. The statutory minimum for the presentation of a Creditor's Petition is $10,000. On the basis of these figures, the secured creditor is a "creditor" within s 44(2) in the amount of $14,000 or $21,000 if interest is added. This is more than the statutory minimum. I should add this. A secured creditor is not required to do more than provide his or her best estimate of the value of the security held by that person and that estimate must not be arbitrary or capricious. There is no evidence here that the secured creditor's estimate is other than its best estimate or that the estimate is arbitrary or capricious. Nor is the secured creditor bound to wait until the prior secured creditors have realised their securities and its position crystallises (Re O'Leary, Ex parte Bayne (1985) 61 ALR 674 at 682 per Sheppard J). 29 It appears the secured creditor became aware of the error in the Creditor's Petition some time shortly after 23 January 2024. Mr Young said he realised the error in the course of preparing a response to a letter from the trustees in bankruptcy in which after receiving, inter alia, the MLA, they asked for a copy of the Creditor's Petition. Mr Young sought instructions from the secured creditor and then this application and affidavits sworn or affirmed by Mr Young and Ms Cameron was brought as an Interim application in the Creditor's Petition proceedings and was issued on 19 February 2024. There has been no unnecessary delay by the secured creditor in terms of the date of discovering the error and issuing this application. 30 Prejudice to creditors in a case such as the present would be a change in position between the issuing of the Creditor's Petition and the time at which they were advised of this application. There is no evidence of such prejudice and none of the creditors have sought to be heard in this application to assert such prejudice or indeed, any other form of prejudice. The debtors were advised of this application. They have not sought to intervene or be heard and there is no evidence from them that they will be prejudiced if the amendment to the Creditor's Petition is allowed (as to the relevance of prejudice to debtors see Re Florance; Ex parte Turimetta Properties Pty Ltd (1979) 28 ALR 403 (Re Florance) at 405 per Lockhart J). 31 Having regard to the matters I have identified, I consider that the amendment to the Creditor's Petition should be allowed. 32 Before concluding these reasons, I record that, in addition to the cases to which I have already referred, I have considered a number of cases concerning the amendment of Creditor's Petitions, including the following: In re a Debtor Ex parte Okill v The Debtor [1977] 1 WLR 1308; Re Finn; Ex parte Amoco Australia Ltd (1982) 41 ALR 487 (Re Finn; Ex parte Amoco); Re Kwiatek; Ex parte Big J Ltd v Pattison (1989) 21 FCR 374 (Re Kwiatek); Wright Designed Pty Ltd v McClymont [2006] FCA 999; (2006) 232 ALR 683 (Wright Designed); and Valladares as Executor of Estate of Andreazza v De Angelis [2020] FCA 1865 (Valladares v De Angelis). 33 Many of these cases are cases in which the petitioning creditor seeks to amend its petition to make reference to its security in accordance with s 44(4) of the Act, but then to go on to say that it surrenders its security and thereby it falls within s 44(3) of the Act (Re Finn; Ex parte Amoco (leave to amend granted); Re Florance (leave to amend granted); Valladares v De Angelis (leave to amend granted)). 34 The requirements of s 44(2) and (3) are not cumulative. In other words, a secured creditor who wishes to bring a Creditor's Petition is not required to surrender its security. A secured creditor is able to bring a Creditor's Petition for the difference between the value of his or her security and the debt owed to a secured creditor providing the debt meets the statutory minimum (Re Wiggins; Ex parte Credit Assistance Pty Ltd (1979) 30 ALR 443; (1979) 36 FLR 182). What the secured creditor cannot do is claim the full value of his or her security and claim a share in the pool of money available to the unsecured creditors based on the full amount of his or her debt. 35 There are two cases which should be mentioned. In my opinion, Re Kwiatek is distinguishable from this case on the basis that in that case the agent of the secured creditor had knowingly sworn an affidavit which he knew was incorrect to the effect that the secured creditor did not hold security (at 632) and that it was not clear that the secured creditor was not seeking to "double dip" by having the full value of its security, and to the extent it was an unsecured creditor, a share of the pool of money available to unsecured creditors on the basis of the full value of its debt (at 639-640). 36 Wright Designed is also, in my view, distinguishable. In that case, the petitioning creditor claimed throughout that he was not a secured creditor. Justice Rares held that he was a secured creditor (at [29]). However, he would not countenance giving the secured creditor an opportunity to amend because of the way in which the hearing was conducted and the findings which his Honour made. His Honour said (at [49]): I have also considered whether to afford Wright Designed an opportunity to apply for an amendment. Having regard to the way the hearing was conducted and to the findings which I have made above, it would not be fair to do so. If Wright Designed, which was legally represented, could amend and reopen, then, in the interests of justice, Mr and Mrs McClymont could also seek to do so to supplement their evidence on solvency. This would render the above reasons and the hearing otiose. The parties chose to conduct the proceedings on the issues which were contested. I am of opinion that it would not be in the interests of justice or fair to grant to Wright Designed, at this late stage, an opportunity to amend its defective creditor's petition and evidence.

Conclusions 37 The orders which I will make are as follows: (1) The Applicant be given leave with effect from 23 August 2023 to amend the Creditor's Petition in the form set out at pp 10-13 in Annexure "DRC-8" to the affidavit of Diandra Rose Ciacciarelli sworn on 18 March 2024. (2) The requirement to file and re-verify the Amended Creditor's Petition be dispensed with. I certify that the preceding thirty-seven (37) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Besanko.