Thorncrest Pty Ltd v Barros

[2006] FMCA 702

FEDERAL MAGISTRATES COURT OF AUSTRALIA

THORNCREST PTY LTD & ANOR v BARROS [2006] FMCA 702

BANKRUPTCY – Review of Registrar’s decision – Sequestration Order – solvency – onus of proof – whether genuine appeal pending – appeal not from orders relied upon in petition.

Bankruptcy Act 1966, ss.52, 52(3)

Deputy Commissioner of Taxation v McCormick No. 2 [2005] 218 ALR 665
Ahern v Deputy Commissioner of Taxation (1987) 76 ALR 137
Adamopoulos and Another v Olympic Airways South Australia and Another (1990) 95 ALR 525

First Applicant: THORNCREST PTY LTD

Second Applicant: SOUTHERN REGION PTY LTD

Respondent: PHILLIPPE BARROS

First Supporting Creditor: CAPITAL FINANCE AUSTRALIA LIMITED

Second Supporting Creditor: MANUAL TSIVOGLOU

File number: MLG 115 of 2006

Judgment of: McInnis FM

Hearing dates: 5 & 10 May 2006

Delivered at: Melbourne

Delivered on: 12 May 2006

REPRESENTATION

Counsel for the Applicants: Mr P. Fary

Solicitors for the Applicants: Deacons

Counsel for the Respondent: Mr L. Watts

Solicitors for the Respondent: Voitin Walker Davis Solicitors

Counsel for the First Supporting Creditor: Mr L. Moon

Solicitors for the First Supporting Creditor: Holding Redlich Lawyers

Counsel for the Second Supporting Creditor: Mr J. Fijalski

Solicitors for the Second Supporting Creditor: White Cleland Pty Solicitors

ORDERS

1. The Application for Review filed 5 May 2006 be dismissed.

2. The Petitioning Creditor’s and Supporting Creditors costs including reserved costs, if any, be taxed and paid out of the estate of Phillippe Barros pursuant to the Bankruptcy Act 1966.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
MELBOURNE

MLG 115 of 2006

THORNCREST PTY LTD

First Applicant

SOUTHERN REGION PTY LTD

Second Applicant

And

PHILLIPPE BARROS

Respondent

REASONS FOR JUDGMENT

(Revised from transcript)

1. This is an application for review of orders made by a Registrar. The Application for Review filed 5 May 2005 seeks review of the orders made by the Registrar on 21 April 2006 which included a sequestration order against the estate of Phillippe Barros (“the Debtor”). This judgment is an Ex Tempore decision. The orders made by the Registrar on 21 April 2006 included a stay order pursuant to s.52(3) of the Bankruptcy Act 1966 (“the Act”).  That stay order was extended by the Registrar and further orders made on 3 May 2006 and by this Court on 5 May 2006.  On 5 May 2006 the Court fixed the Application for Review for hearing on 10 May 2006. 

2. The application for review seeks to set aside the Sequestration Order.  It is claimed on behalf of the Debtor that rather than proceed to deal with the Creditor’s Petition and dismiss that Petition that the Court should adjourn further consideration of the Creditor’s Petition for a period of approximately one month.  During that time it is claimed that there are certain pending applications by the Debtor seeking to appeal and/or set aside default orders.  Those matters are listed on various dates over the next three or four week period.

3. The Creditor’s Petition in this matter was filed on 23 January 2006.  It claimed a debt to the petitioning creditors of an amount of $14,312.60.  That amount is claimed to be pursuant to costs orders in proceeding number 4807 of 2003 in the Supreme Court of Victoria (“The Supreme Court Action”). 

4. In the Supreme Court action the petitioning creditors are the plaintiffs and the Debtor, the first defendant.  It appears from the material that costs orders were made on the following dates; 26 November 2003, 4 April 2004, 10 August 2004, 3 September 2004 and apparently two orders were made dated 27 October 2004.  As indicated, the total of the taxed costs is claimed to be $14,312.60.  The bankruptcy notice relied upon by the petitioning creditors refers to the same amount.  There does not appear to be any challenge or appeal pending in relation to those costs orders.  The total amount owed by the Debtor, according to material provided to the Court, namely an order of the Supreme Court of 19 October 2005, now indicates that there is a total amount due and payable by the Debtor to the petitioning creditors arising out of costs orders in the Supreme Court of $17,983.40. 

5. No issue is taken as to the amount claimed and for present purposes it does not, in my view, take the matter much further to note that there is an amount of just over $3,000.00 difference between the amount in that order and the amount in the bankruptcy notice and the petition.  I do note in passing that it seems to me that the dates referred to in the creditor’s petition are not identical to the dates referred to in the order of the Supreme Court of 19 October 2005.  It is unnecessary for me to reconcile that material and it would appear that no further explanation is given to the Court to explain the discrepancy.  I am satisfied that there is appropriate material before the Court and it is not disputed that the amount of, at least, $14,312.60 pursuant to the orders referred to remains outstanding and is not the subject of any challenge or appeal in relation to those orders. 

6. It should be noted at the outset that an application of this kind is a hearing de novo.  I note in particular, as indicated earlier, that the Debtor, if successful, seeks only to have the Sequestration Order set aside and to otherwise adjourn the further consideration of the Creditor’s Petition.  By agreement the Court has been invited to regard as evidence in this application the transcript of the evidence before the Registrar on 21 April 2006.  (Exhibit PC1).  Essentially, the grounds relied upon by the Debtor before this Court appears to be that he is solvent and/or has a genuine and arguable proceeding pending, or proceedings pending in other Courts where the Debtor seeks to pursue perceived rights. 

7. As I understand it those pending applications relate to, first, a substantive judgment against the Debtor in favour of the Petitioning Creditors in the Supreme Court of Victoria where a judgment was obtained and order made for the sum of $724,513.01 on 9 December 2005.  Secondly, a judgment for $35,213.52 in the State Magistrates Court of Victoria in favour of Capital Finance Australia Limited, the First Supporting Creditor.  I should say in passing that no issue is taken in relation to that figure and my analysis of the documents before the Court tend to reveal it is difficult to determine that that is the precise amount.  Nevertheless, for present purposes it is sufficient to note that there is indeed a judgment for an amount of approximately $35,000.00 in favour of the First Supporting Creditor.  I note and refer to affidavit evidence which appears to have been filed on behalf of the First Supporting Creditor. 

8. The third proceeding is a default judgment for $206,726.00 in the County Court of Victoria in favour of Mr Manual Tsivoglou, the Second Supporting Creditor.  The date of that order is 18 April 2006.

9. The Petitioning Creditors have relied upon the usual affidavits in support of the Petition including the affidavits verifying paragraphs 1, 2, 3 and 5 of the Petition and affidavits of search. No issue is taken as to any requirement made upon the Petitioning Creditors to provide updated affidavits and the Court, in the circumstances, is content to rely upon the affidavits which purport to comply with the requirements of the Act and in particular s.52 of the Act and on the material before me those requirements have been met.

10. As I have indicated, the issue essentially before this Court relates to the pending proceedings and the request for an adjournment to allow those proceedings to be heard and determined and, further, an assertion by the Debtor that he is solvent.  None of those proceedings which have been referred to in the material seek to set aside the orders which are the subject of the bankruptcy notice and in turn the Creditor’s Petition.

11. In this case the notice which sets out the grounds of opposition to the petition filed on 20 April 2006 states the grounds as follows:

    “1.    Application will be made to the Supreme Court of Victoria to set aside the debt on which the Petition is based.

    2.     The Respondent is solvent.”

12. For the present purposes the ‘Respondent’ is the Debtor.  As I indicated, the applications that have been made to the Supreme Court do not, contrary to the grounds set out in that document, seek to set aside the debt on which the Petition is based.  The evidence that the Debtor provides, apart from oral evidence both before the Registrar and this Court, includes significantly affidavits sworn by the Debtor on 20 April 2006 and 8 May 2006.  In the first of those affidavits sworn 20 April 2006 (the First Affidavit) the Debtor states:

    “4.    In or about the period September 2005 to January 2006, I worked for a company known as A.D.P. Australian Dairy Products (Longwarry) Pty Ltd, ACN 107 321 728 (in liquidation) (“the company”), which was placed into liquidation by order of the Supreme Court of Victoria on 22 February 2006.  Mr Richard Cauchi of CJL Partners was appointed liquidator.

    5.  I was in Court on 19 October 2005.  Shortly after 19 October 2005, I asked the company's accountant, Edwin Sim and Mr Panther, a director, to pay my wages by making a payment in the sum of $17,000 to Deacons, the solicitors for the Applicants.      In or about late October 2005 Mr sim informed me and I verily believe that a cheque for the $17,000 had been sent to Deacons.

    6.  I have been informed by Michael Carrafa of CJL Partners that the liquidator's enquiries have determined that a cheque payment of $17,000 was made and cleared through the company's cheque account on 31 October 2005, but that the liquidator has not yet been able to determine who actually received the money.

    7.  Consequent upon the Order made on 19 October 2005, the applicants were able to obtain the judgment made on 9 December 2005, wherein the Court ordered:

    “There is judgment in favour of the Firstnamed Plaintiff against the Firstnamed Defendant for $550,000.00 plus $174,513.01 interest plus costs of the proceedings including the costs of the counterclaim and costs of this application.”

13. The deponent exhibits a copy of the order.  At this point it is noted that the Petitioning Creditors relied upon affidavit material contesting the assertion that the sum of $17,000.00 was paid to Deacons.  The Debtor, in the first affidavit goes on to depose:

    “8.    I have intended to make application to have the Orders of the Supreme Court made on 19 October 2005 and 9 December 2005 set aside.  My delay in doing so was due to being unable to get the proof that Deacons in fact received and banked a cheque for $17,000.

    9.  I am further informed by Michael Carrafa and verily believe that the liquidator will be seeking to obtain details from the company's bank about what happened to the proceeds of the said cheque.

    10.    In any event, having regard to the difficulties that I am no experiencing in this Court, I intend to pay the sum of $17,983.40 to the Plaintiffs next week and make application to have the said orders vacated.  I shall be in a position to make the said payment as I shall be receiving a sum in excess of this amount from Mr John Fouad Morgan upon settlement of the purchase of units at 2 Alameda Avenue, Mornington.  I verily believe that I have a good defence and counterclaim to the Applicant's claim in the Supreme Court.”

14. A number of observations can immediately be made in relation to those extracts from the Debtor's first affidavit.  The first is a recognition and acknowledgment of an indebtedness that the deponent refers to of $17,983.40.  Further, as at 20 April 2006 the Debtor refers to difficulties he was experiencing in the Court and a claim made that he verily believed that he would be in a position to make the payments as he was to receive a sum in excess of that amount from Mr Morgan.  In the same affidavit the Debtor proceeds to provide details concerning his financial affairs.  It is noted that in paragraph 12 of the affidavit the deponent states:

    “12.  My asset and liability position is as follows:

    Amounts owed to Phillippe Barros Trading as Felipe De Barros Corporate Adviser.

    Zourkas Developments Pty Ltd ACN 106 877 794 and Joyce Developments Pty Ltd ACN 107 321 559

    The directors of the above companies have engaged me to market and consult to the above companies which are involved in building units (residential).

    17)    Town House – Lorraine Court, Hillside, Victoria;

    4)     Units at Joybells Crescent, Taniet;

    2)     Units at Albert Place, Werribee;

    3)     Units at Riverside Avenue, Werribee

    Total units sold and settled are:

    10 units total amount received  $110,000.00

    balance still owing to Phillippe Barros            $190,000.00

    A caveat has been lodged on the above properties protecting my interest.

    Total amount of money still owed to me upon each of the remaining settlements:

    $37,000 @ 17 units  $629,000.00

    John Morgan

    Fees to be received for consulting work -        $77,000.00

    to be paid by the end of the month

    Total to be received  $896,000.00

    Current Liabilities

    1.     Deacons solicitors (provision)                 $17,900.00

    2.     Spero Construction  $86,256.00

    3.     Lorretto Mandeville Hall  $13,000.00

    (daughters school fees)

    4.     Mr. L.M.F. Watts  $35,000.00

    Total Liabilities  $152,150.00

    Gross net assets  $743,850.00”

15. Again, it is appropriate to make a number of observations in relation to the material set out in that paragraph in the first affidavit.  The first observation I make is that when considering the claimed sources of income and the reference to the various units referred to in that paragraph, there does not appear to be precise particulars which one might normally expect including basic details concerning title particulars, contract details, agent appointments and other material which might at least provide the Court with some opportunity to endeavour to place some value on some of the units purportedly relied upon by the Debtor.

16. The Debtor clearly asserts in broad fashion that there are significant amounts purportedly owed to him.  He does seek to provide some corroborative material though in this case I make the general observation and indeed the further specific observation in relation to the assets, liabilities and income of the Debtor that there is what could only be described as a dearth of corroborative documentation or other evidence in support of the assertions made by the Debtor.  The Debtor has sought to rely upon an affidavit of Mr John Fouad Morgan.  I note Mr Morgan gave evidence and was cross-examined before the Registrar and I have regard to the affidavit evidence and also the evidence before the Registrar. 

17. The affidavit of Mr Morgan sworn 20 April 2006 states, in part, a reference to a payment to the debtor and it is appropriate to refer to the paragraph in that affidavit where the deponent states:

    “1.    I entered into a contract to purchase units 1-5, 2 Alameda Avenue, Mornington.  Settlement of the purchase of the units is due to take place on a day to be appointed next week, I am still waiting for advice from my solicitor as to which day next week settlement will take place.  I have the funds ready to be advanced to effect the settlement as evidenced from the letter to me from John Matthies & Co. dated 6 April 2006 a copy of which is now produced and shown to me at the time of swearing this my Affidavit and marked “JM-1”.  Upon settlement I shall forthwith be paying Mr Phillippe Barros a sum of in excess of $17,983.40.”

18. The Exhibit ‘JM1’, is a letter dated 6 April 2006 and refers to an application for a first mortgage loan over the property units 1-5, 2 Alameda Avenue, Mornington, and an indication that the lender is prepared to advance a sum of $1,050,000 up to 55% of sworn valuation.  The letter refers to a number of conditions.  It is not, in my view, to be regarded as anything other than an indication of an offer for finance which is conditional. 

19. In the evidence given by Mr Morgan before the learned Registrar it is noteworthy that during the course of his evidence and when asked a number of questions the following exchange appears during the course of cross-examination.  This appears at page 62 of the transcript, line 25. 

    “Could I ask that a copy of Mr Morgan's affidavit be handed to him.  Mr Morgan, what is your connection with Mr Barros?  What is your association with him?---My association with him that I basically met him through an acquaintance in a business adventure and I was interested in purchasing some properties and that’s how I met Phillippe.  He mentioned that there was some properties in Mornington that I was interested in buying and I went ahead with that.

    When did that meeting occur?---A few months ago.

    A few months ago?---Yes.

    So February – January/February of this year?---January.

    January of this year.  And did you document any arrangement in relation to - as between yourself and Mr Barros?---No.

    What was the arrangement between you and Mr Barros?---That basically out of the – the property deal that I would give him a percentage of the commission from the properties.

    A percentage of the commission?---Yes.

    Which commission?---The commission that he deserves out of the properties.”

20. The Registrar then interrupts and asks:

    “Sorry, that he deserves?---Yes.  We made an arrangement that basically that whatever I will be making out of the property I will be giving him $77,000 and that is how I stand my ground.”

21. Mr Fary of Counsel then asks:

    “Okay. And the figure was mentioned in your conversation in January?---No, no, this was done - because the settlement was done next week.

    Yes?---But we had to go through the procedures with the vendor, the solicitors and we had to come up with a figure which was just done a few days ago and that is how it was done.

    So until a few days ago Mr Barros wasn't entitled to any money as a result of the introduction?---No, he was, but we weren't quite sure what was the exact figure.

    I see?---Yes.

    Now, prior to a few days ago what discussions have taken place as to the method by which Mr Barros would be paid for introducing you to the property?---I am not quite sure what you’re saying.

    Well, you say this figure of $77,000 was arrived at a few days ago?---Yes.

    And prior to that you say there was some sort of agreement between you and Mr Barros whereby you would pay him some money for his---?---Yes, it was between $70,000 and $80,000.  That was the rough figure, but because we had come to every - fees and - application fees, the vendors fees, stamp duty fees, it came to $77,000.”

22. I have deliberately referred in some detail to that extract from the transcript of evidence, both specifically in relation to the supporting material from Mr Morgan and also in general to demonstrate by way of example the nature of the arrangements purportedly relied upon by the Debtor in relation to his financial affairs and business arrangements.  There are at once a number of observations that can be made about those matters including, as I indicated earlier, a distinct lack of documentary material despite there being what can only be described as significant dealings in the sale of land and, further, a significant degree of vagueness in terms of legal duties to make payment, the nature of the payments, the amounts of the payments, the purpose of the payments and whether indeed there is any enforceable duty on any person to actually make payments out of settlements of the relevant units.

23. The Debtor further relies upon an affidavit sworn by him on 8 May 2006 as follows:

    “2.    I was one of the defendants to the Victorian Supreme Court proceeding No.4807 of 2003 (“the Supreme Court proceeding”).  The applicants were the plaintiffs to the said Supreme Court proceeding.

    3.  The Supreme Court proceeding arises out of a contract of sale executed by me and dated 23 July 1999 (“the said contract”) to purchase a property situate at and known as unit 10, 131 Hotham Street, Melbourne (“the unit”).  The said contract was signed in my presence by Mr DeFazio for and on behalf of the firstnamed Defendant (“Thorncrest”).

    4.  The Applicants claim in the Supreme Court proceedings was for the balance of money alleged to be due under the said contract.

    5.  The unit was one of a number of units that were constructed around the shell of an old church in Hotham Street.

    6.  I negotiated the said contract with a Mr Joe DeFazio who was introduced to me by Mr Jim Nibaldi a director of Abercromby & Beatty.  Abercromby &Beatty were marketing units in the development for sale.

    7.  When I was introduced to him, Mr DeFazio informed me that he was a director of the firstnamed Plaintiff.  However, I am now aware that the ASIC records disclose that Mr DeFazio was never a director of Thorncrest.

    8.  At the time of negotiating the said contract of sale, Mr DeFazio and I agreed that settlement would be on 14 September 2000, but that I could immediately enter into occupation on payment of $5,000 per month.  Upon signing the said contract, my wife and I immediately went into occupation of the unit and paid Thorncrest $5,000 per month.  I was in occupation up until March 2001.  I paid Thorncrest the $5,000 per month.  For the first three months I paid Abercrombie & Beatty and thereafter I paid the same to Mr DeFazio payment was in cash.

    9.  After I had moved in into the unit, Joe DeFazio was living in one of the units downstairs. We often talked.  One of the things he would talk to me about was a development that he said he was doing in Bay Street, Port Melbourne where he was also converting an old church into residential units.

    10.    In or about November 1999, Mr DeFazio telephoned me and said to me words to the effect that he had concrete tracks lined up a the Bay Street construction site ready to do a concrete pour, but that the concrete company Arzenti Constructions Pty Ltd which was owed about $400,000 was refusing to do the pour unless a part payment in cash of $220,000 was made immediately.  Mr DeFazio asked me if I could make an immediate part payment in cash towards the purchase of the unit.  Mr DeFazio and I agreed that for the payment of $220,000 in cash, that the purchase price of the unit would be reduced by $500,000.  Mr DeFazio then asked me to get the cash and meet him at the construction site at Graham Street, Port Melbourne.  I agreed, and I drove to the Graham Street, construction site.  I observed that work on the site had stopped and that there were of people waiting for payments.  I then handed over the $220,000 in cash to Mr DeFazio.

    11.    I handed over the money without getting anything in writing, as Mr DeFazio was living downstairs and I was due to pay money for the purpose of the unit.  I did not see there being a risk in undertaking the transaction notwithstanding the surrounding circumstances.”

1. Significantly, those passages of the affidavit refer to a Mr Joe DeFazio  and to payment of certain moneys.  After making reference to the Supreme Court proceedings which are relevant in this application.  The deponent, it will be noted from the paragraphs set out in this judgment, significantly and relevantly refers to events which allegedly occurred in or about November 1999.  It will be evident from paragraph 10 included in this judgment of the affidavit of the Debtor that he asserts that a sum of $220,000.00 in cash was handed over to Mr DeFazio.  

2. Again, it is noted that notwithstanding notices to produce in this Court and requests made and questions asked of the Debtor there does not appear to be any documentary material which would in any way support the payment of that sum or at the very least identify the source from which the funds were obtained.  Further it is noted that there is no suggestion that Mr DeFazio, at any relevant time, was a director of any relevant company.  Perhaps that is consistent with paragraph 11 set out earlier in this judgment from the Debtor's affidavit where he stated that he handed over the money without getting anything in writing as, in his words:

   “Mr DeFazio was living downstairs and I was due to pay money for the unit.  I did not see there being a risk in undertaking the transaction notwithstanding the surrounding circumstances.”

3. In considering that supporting material and the evidence concerning the payment of the amount of money unsourced and not verified in any further documentary material it is perhaps not surprising that in circumstances of this kind Courts are more inclined to conclude that the suggestion that money was paid in those circumstances is implausible.  In this instance the Debtor seeks corroborative support by relying upon the affidavit of Mr Sebastian Schallaci sworn 10 May 2006.  That witness deposes in his affidavit the following:

   “1.    In or about November 1999, I was engaged by Phillippe Barros to accompany him to a building site in Port Melbourne at the corner of Graham and Bay Streets, as he would be carrying a large sum of cash.  I observed the money in a zip black bag.  I did not count the money but there was a substantial quantity of $100 notes in the bag.  I saw Phillippe Barros hand the money to Joe DeFazio who was a person who was known to me.

   2.  Part of the cash was $50,000 that I went and collected, on Phillippe Barros' behalf from Mr Jeff A’Moure of the Rebel Motorcycle Club - Sunshine Chapter.  This money was repaid back to Mr A’Moure in July 2002 by which stage the debt was $80,000.  I attended to payment of the $80,000 on Mr Barros' behalf.  The repayment was made in two payments each for $40,000.  The monies were paid in cash.”

4. A number of observations may be made about that material set out in the affidavit of Mr Schallaci.  First it is clear that, there again, apart from the reference to the ‘Sunshine Chapter’ of the ‘Rebel Motorcycle Club’, there does not appear to be any precise details as to the total amount claimed to be in the bag, described as a zip black bag.  There is a distinct absence of dates, details or any other information in that affidavit.  I have concluded that that affidavit, to the extent that it purports to corroborate matters asserted by the Debtor, should not be relied upon.  I regard the material as vague, unhelpful, imprecise at best, and at worst nonsensical and unbelievable. 

5. The law in relation to matters of this kind was set out briefly in a judgment of this Court in the matter of Deputy Commissioner of Taxation v McCormick No. 2 [2005] 218 ALR 665 at 667 as follows:

   “7.Both parties had referred the Court to relevant authorities which in brief terms include a reference to the decision of the Federal Court in the matter of Sandell v Porter (1966) FCA 115 CLR 666 and Re Sarina; Ex parte v Wollondilly Shire Council (19980) 43 FLR 163; Sarina v Wollondilly Shire Council (1980) 48 FLR 372. It is clear from the authorities to which reference has been made that if it can be established that the debtor is in a position to pay all of the debts that he owes within a reasonable time, then he ought not be subject to a sequestration order. I agree that the application of the relevant principles does not necessarily involve a simple balance sheet assessment of assets against liabilities and nor does it involve requiring a debtor to have sufficient cash on hand or available on deposit to pay all creditor’s in full immediately if the debtor has other assets.

   8.It is noted that in Sandell v Porter, the Court in that case at page 670 states in relation to the funds being available to the debtor to pay his debts for solvency purposes are -

   “15.  … not limited to his cash resources immediately available.  They extend to moneys which he can procure by realization by sale or by mortgage or by pledge of his 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. …”.  (Emphasis added)”

6. Counsel for the Debtor referred the Court to the decision of the Full Court of the Federal Court in Ahern v Deputy Commissioner of Taxation (1987) 76 ALR 137 at page 146 where the Court states:

   “However, the refusal to grant an adjournment may in some cases prevent the party seeking it from presenting his case or defence and in some circumstances this may result in injustice of such kind or magnitude as to warrant interference on appeal.” In Maxwell v Keun [1928] 1 KB 645 Aitken LJ said (at 653): I quite agree the Court of Appeal ought to be very slow indeed to interfere with the discretion of the learned judge on such a question as an adjournment of a trial, and it very seldom does do so; but, on the other hand, if it appears that the result of the order made below is to defeat the rights of the parties altogether, and to do that which the Court of Appeal is satisfied would be an injustice to one or other of the parties, then the court has power to review such  an order, and it is, to my mind, its duty to do so.”

7. That decision of the Full Court in Ahern is authority for the proposition that the Court has discretion to determine whether or not it will adjourn the hearing of a Petition, as requested in this case, and further, is authority for the proposition that before a person can be made a bankrupt the Court must be 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 ought to be investigated before he is made bankrupt. 

8. Specifically, the passage to which I have referred and which I have included in this judgment states that the refusal to grant an adjournment may in some cases prevent the party from seeking or presenting his case or defence and in some circumstances this may result in injustice of such a kind or magnitude as to warrant interference on appeal. 

9. The Court in Ahern was, making its remarks in the context of the well-accepted law that the discretion of whether or not to adjourn a Petition is not a matter which an appellant Court will normally interfere or to put it another way, will rarely interfere with upon appeal.  Further reference was made to the Full Court decision in Adamopoulos and Another v Olympic Airways South Australia and Another (1990) 95 ALR 525. And, in particular, reference was made to line 26 at page 531 where the Court states:

   “An appeal against the very judgment which founds the bankruptcy notice is a matter of significance requiring advertence to the possibility that the appeal may be justified.  Nor is it realistic to entertain any confidence, in other than a special case, that a trustee and bankruptcy will decide to pursue an appeal with merit.”

10. I am prepared for the present purposes to accept and apply the extracts from the authorities to which reference has been made by the Debtor.

11. In dealing with the facts, I have already made some observations about what I would consider to be the inadequacy of the material relied upon by the Debtor. 

12. There are a number of examples that could be drawn from the material.  I have had the advantage of considering the material before this Court including the advantage of reading transcribed proceedings which occurred just a day or so ago.  Together with that, I have had the advantage of reading the transcript of the evidence before the learned Registrar. 

13. The point should be made, that in matters of this kind there is an onus on a Debtor to establish solvency, and to do so with credible and reliable evidence. It is not, in my view, for the Court to be drawn into what I might describe as a ‘vortex’ of confusing evidence in order to extrapolate from that evidence a plausible and reliable basis upon which the Court can conclude that the Debtor is indeed solvent for the purposes of the Act. Hence, in my view, it is not necessary for the Court to consider in minute detail the matters which are evident on the material in terms of cross-referencing to the material each and every reference to corporations and what I might describe as property transactions where the debtor claims to attain some benefit.

14. There are a number of aspects of the evidence which I regard as vague and unreliable.  In his evidence, the debtor indicated to this Court when seeking to assess his current gross income for this financial year that he had earned approximately $150,000.00 of which $110,000.00 is claimed to have been applied for the repayment of loans.  Vague details are given in relation to that in the transcript of the evidence before the learned Registrar.  Again, there appears to be a distinct lack of documentary evidence.  That deficiency in the material ought to be viewed against the back-drop of the financial affairs of the Debtor who, on his own evidence, would not appear to have filed an income tax return for many years. 

15. It would appear there has not been an income tax return filed by the Debtor since at least 1994.  The Debtor explains the absence of income tax returns for at least part of that period, having regard to activities that he was engaged in, purportedly assisting Victorian Police.  He refers to the fact that he was apparently made the subject of a Sequestration Order in 1998 and was discharged from bankruptcy in 1999.

16. The Debtor claims an entitlement, however, to income and/or funds from what he has described during the course of his evidence as irrevocable authorities, which I take to be authorities to either sell and/or procure finance in relation to certain property developments.  Again, however, there is a distinct lack of reliable evidence to support that assertion.  When one considers the indebtedness of the Debtor and, in particular, considers the liabilities of the Debtor about which he was cross-examined it would appear, at the very least, that the debt which is the subject of the Petition has not been paid.  I further find that at all relevant times the Debtor has been unable to demonstrate an ability to pay that debt.  That of itself in these circumstances, subject to other findings which I wish to make, will be sufficient to dispose of the matter.

17. However, it is also noted that from the liabilities which are listed whilst there a number in dispute according to the Debtor, after allowing for the dispute in relation to those debts which, in my view is a generous allowance, one is still left with the conclusion that there a number of debts that have remained unpaid for a considerable period of time.  By way of example, school fees of $13,000.00 which I conclude at the very least were fees arising out of the previous year remain due and unpaid. 

18. There is another judgment which was made in favour of another creditor which, again, is acknowledged as being unpaid.  When one comes to add up the total amount of unpaid debts, it is clear that they amount to something in the order of approximately $124,000.00.  The reference which was made earlier to the ‘prospect’ and I put it no higher than that of payment of $77,000.00 in the near future.  In my view, it is mere speculation, in the absence of firm evidence that there is an amount due and payable at law and/or that any amount is in the immediate future likely to be realised. 

19. But again, if one makes a generous allowance to the Debtor that that amount is to be paid in the not too distant future, it still leaves an indebtedness of something in the order of an amount between $45,000.00 and $50,000.00.  During the course of cross-examination before this Court, the following exchange occurred between counsel for the Petitioning Creditors and the Debtor.

    “I will just quickly delete - so if I delete 621.75 from the costs order, and if I delete $2441.10 from the interest on the Spero Construction debt, and if I delete the $35,000 owing to Mr Watts, on the basis that you say it is not due and payable immediately, I come up with a sum of $124,739.40.  And do you agree with that figure?---Yes.

    Now, I put to you that you can't pay that amount of money today?---No.

    You are not in a position to?---No, I am not.”

    (Transcript p.92)

20. It will be clear from that extract in the cross-examination which continues to press the debtor in relation to a capacity to pay the money in the future that the cross-examiner has endeavoured to make deductions from the amount of liabilities by considering those liabilities admitted and then further making the allowances, which I have described as generous allowances earlier in this judgement, with the result that ultimately there is the difficulty acknowledged by the Debtor himself that he did not have a capacity to pay the sum of $124,739.40 and was not able to pay that amount on the day of the hearing.  The following exchange is relevant:

    “   Why did you say you would be able to pay $124,739.40 within one month’s time?---That is easy.  I have spoken to Commercial Funding on Monday.  They have taken possession, they are going to complete the works that have to be completed, so the building insurance can be issued.

    So, your ability to pay that amount of money depends on you being able to come to an arrangement with Commercial Funding that would allow you to receive some money in respect of the Hillside properties?---As I said, that I had a meeting on Monday with Commercial Funding and they have taken possession and they will complete the work that needs to be completed on those units.  That won't take very long.”

21. Due to the vagueness and, to some extent, unsatisfactory nature of the material, I have not sought to analyse in detail the various property transactions save by those extracts to give a flavour of the type of transactions and prospects for payment relied upon by the Debtor.

22. I conclude from the evidence before me that there is no reasonable foreseeable prospect of an amount of money being paid to the Debtor which would enable the debtor to pay or to realise assets to pay the debts currently faced by the Debtor, even if I deduct from the liabilities significant amounts which are clearly evident in the material.

23. Further, even if one puts to one side for the moment the significant judgment debts referred to earlier in the proceedings which are the subject of pending applications in other Courts, it is my conclusion that in the circumstances, applying the relevant law to this application, I am not satisfied that the Debtor is able to pay his debts according to law and I am not satisfied he is solvent.  I am also not satisfied in the exercise of a discretion of this Court that even if I were minded to set aside the Sequestration Order that this a matter where the Court ought properly in the exercise of its discretion in the interests of justice adjourn the consideration of the Creditors Petition for a period of approximately one month.  Applying the authorities, to which I referred earlier, it is my concluded view that in this instance it would not be in the interests of justice to do so.  A Court is required in matters of this kind to balance the individual and personal interests of this Debtor which I accept may well be adversely affected by a Sequestration Order with the public interest of this Court to properly and appropriately administer bankruptcy laws in the interests of the community and not simply the Petitioning Creditors or the Supporting Creditors.

24. For the reasons given and having regard to the fact that there is indeed no pending challenge specifically in relation to the debt which is the subject of the Creditors Petition, relying upon the bankruptcy notice as it did, the appropriate orders of the Court are:

    (1)    The Application for Review filed 5 May 2006 be dismissed.

    (2)The Petitioning Creditor’s and the Supporting Creditors costs including reserved costs, if any, be taxed and paid out of the estate of Phillippe Barros pursuant to the Bankrupcty Act 1966.

25. Upon the Court announcing the proposed orders an application was made on behalf of the Debtor that although the Court was minded to dismiss the Application for Review of a Registrar's decision where a Sequestration Order was made it might be preferable to make a new or fresh Sequestration Order this day with perhaps a stay pursuant to s.52(3) of the Act which enable the Debtor to, at least, have a period of time within which to lodge an appeal in the Federal Court.

26. It is clear that this Court does not have power to stay its own order pending an appeal in the Federal Court.  In my view, the Application now made would be tantamount to effectively granting the stay and would be inconsistent with the conclusion that I have drawn that the Application for Review should be dismissed for the reasons given.  In my view, it would be inappropriate for this Court, in making the orders announced, to accept the Application made by Mr Watts on behalf of the Debtor. 

I certify that the preceding forty-nine (49) paragraphs are a true copy of the reasons for judgment of McInnis FM

Deputy Associate:  Brooke Evans

Date:  12 May 2006