CATCHWORDS Interlocutory injunction - Restraint of presentation of debtor's petition under s.55 of the Bankruptcy Act 1966 - Abuse of the procedure under s.55 - Inference open that the presentation of the petition was nothing more than a continuance of a plan to defraud the applicant and was intended to evade enforcement of an earlier Mareva order. Bankruptcy Act 1966, s.55 , ' Clyne v. Deputy 'Coniniissioner of Taxation (1984) 154 C.L.R. 589 In re Mottee (1977) 29 F.L.R. 406 EX parte Hewitt; In Re Drinkwater (1862) 31 L.J.(NS) (Cases in Bankruptcy) 83 Sandell v. Porter (1966) 115 C.L.R. 666 Bayne v. Riggall (1908) 6 C.L.R. 382 Bayne v. Blake (1909) 9 C.L.R. 347 EX PARTE: STERLING INDUSTRIES LIMITED (RECEIVERS AND MANAGERS APPOINTED) (Applicant/Creditor); RE: JOHN WILLIAM JACKSON (First Respondent/Debtor) AND THE REGISTRAR IN BANKRUPTCY FOR THE SOUTHERN DISTRICT OF THE STATE OF QUEENSLAND (Second Respondent) P.452 of 1986 Burchett J. Sydney 5 September 1986 10 SHIP i235 "\. BADERAL couAT a \. 8 AUSTRALIA ly IN THE FEDERAL COURT OF AUSTRALIA BANKRUPTCY DISTRICT OF THE STATE OF NEW SOUTH WALES AND THE AUSTRALIAN CAPITAL TERRITORY GENERAL DIVISION No. P452 of 1986 EX PARTE: STERLING INDUSTRIES LIMITED (RECEIVERS AND MANAGERS APPOINTED) Applicant/Creditor JOHN WILLIAM JACKSON First Respondent/ Debtor THE REGISTRAR IN BANKRUPTCY FOR THE SOUTHERN DISTRICT OF THE STATE OF QUEENSLAND Second Respondent MINUTE OF ORDERS OF THE COURT Judge Making Orders: Burchett J. Where Made: Sydney Date of Orders: 5 September 1986 Upon the Applicant giving the usual undertaking as to damages THE COURT ORDERS THAT: (1) John William Jackson be restrained until further order from presenting a petition against himself pursuant to s.55 of the Bankruptcy Act 1966 and that the Registrar in Bankruptcy for the Southern District of the State of Queensland be restrained until further order from accepting, pursuant to the said section 55, any such petition until the earliest of the following: (a) Such time as the said John William Jackson complies with Order number 1 of the Orders made by Sheppard J. (b) (c) 2. on 23rd April, 1986 and entered on that day in proceedings number G281 of 1984 in the General Division of the New South Wales District Registry of the Court; Such time as the said Order 1 has been discharged by the Court; or Such time as the Court grants leave to John William Jackson to present a petition against himself pursuant to section 55 of the Bankruptcy Act. "T+ "4 3%s-=(2)--= Costs of -this-application to-be- reserved. - =. NOTE: Settlement and entry of orders is dealt with in Bankruptcy Rule 124. IN THE FEDERAL COURT OF AUSTRALIA BANKRUPTCY DISTRICT OF THE STATE OF NEW SOUTH WALES AND THE AUSTRALIAN CAPITAL TERRITORY GENERAL DIVISION No. P452 of 1986 EX PARTE: STERLING INDUSTRIES LIMITED (RECEIVERS AND MANAGERS APPOINTED) Applicant/Creditor JOHN WILLIAM JACKSON First Respondent/ Debtor THE REGISTRAR IN BANKRUPTCY FOR THE SOUTHERN DISTRICT OF TRE STATE OF QUEENSLAND Second Respondent REASONS FOR JUDGMENT BURCHETT J. This is an interlocutory application to restrain the presentation and acceptance of a debtor's petition under s.55 of the Bankruptcy Act 1966. When the matter came before me, upon the applicant's application to continue an injunction granted ex parte by Beaumont J., I continued the injunction until and including the whole of the day on which judgment should be delivered in this application. I now deliver that judgment. 2. It is desirable first to recite the form of the order which I made on 6 May 1986. It is as follows: "Upon the Applicant undertaking to pay to any party adversely affected by this interlocutory injunction or undertaking such compensation (if any) as this Court thinks just in such manner as the Court directs - THE COURT ORDERS THAT:-— 1. Order that John William Jackson _ be we eee ee - restrained until and. including. the whole Toner mene meg snes nee ee gf the day on which-~jjudgment is- delivered -- ~ os csr - sents + + -in this application from presenting a era eames | 6 et Petition. against himself. pursuant ta. . - Section 55 of the Bankruptcy Act, 1966 tere te eee re and that 'the Registrar in Bankruptcy of the Southern District of the State of Queensland be restrained for a _ like period from accepting pursuant to the said Section 55 any such Petition until the earliest of the following:- (a) Such time as the said John William - Jackson complies with Order number 1 of the Orders made by Sheppard J. on 23rd April, 1986 and entered on that day in proceedings number G281 of 1984 in the General Division of the New South Wales District Registry of the Court; (b) Such time as the said Order 1 has been discharged by the Court; or (c) Such time as the Court grants leave . to John William Jackson to present a Petition against himself pursuant to Section 55 of the Bankruptcy Act." To understand that form of order, it is of course necessary to know what Sheppard J. ordered in the earlier proceeding. Before me, counsel for the applicant relied upon the judgment of Sheppard J., which was delivered on 23 April 1986, and counsel for Mr. Jackson expressly conceded, for the purposes 3. of the application for continuation of interlocutory relief, the correctness of the findings of fact contained in that judgment. So it is convenient to begin by summarising what those findings of fact were. They were made in the context of an application for a Mareva injunction brought by Sterling Industries Limited against Nim Services Pty Limited, Mr. Jackson, and others. The principal question in the Mareva injunction proceedings was whether Mr. Jackson, and a number of companies he controlled, should be ordered to provide security. for the sum of $3 million 'claimed upon causes of action under s.52 of the Trade Practices Act' 1974 and upon the basi's of fraud at common law. Sheppard J. held that there were good prospects a judgment in a sum of approximately $3 million would be recovered against (inter alios) Mr. Jackson, that there was evidence Mr. Jackson feared a very large judgment, that about July 1985 or perhaps a little earlier he had sought advice from solicitors and accountants about these matters, and that after the advice was given "there began a wholesale divestiture of assets owned up to that time by the first respondent (i.e. Nim Services Pty Limited) and Mr. and Mrs. Jackson." By 12 November 1985 "the divestiture was still continuing, but had to a large degree apparently been accomplished." Sheppard J. referred to "certain activities of Mr. Jackson in relation to a sum of $4.3 million in cash." He said the principal sum making up this money consisted of borrowings 4. from two finance companies in or about the month of November 1985, and that the money was deposited in the names of two companies controlled by Mr. Jackson. He then continued: "Eventually, on 21 February 1986, Mr. Jackson arranged for the money to be delivered to him in cash. A firm, Armaguard, which 1s a trading name for Mayne Nickless' Limited, delivered the money from the Reserve Bank to one of the Brisbane branches of Westpac Banking Corporation. In the presence of Mr. Rogers of Armaguard and of Mr. Jackson the Ho ose os tees *< money was placed im-three- safe deposit boxes "at the bank, one of which Mr. and Mrs. Jackson had had for some time. The remaining wry 4 mt eeu so sme tetwo were newly acquired.- They were-in Mr. . - Jackson's name. According to Mr. Rogers, "tre + sas te +r «anadwhose evidence I -accept, there was .nothing else in any of the boxes when the money was placed in them. From records kept by the bank it is established that each of the boxes was subsequently opened. Upon the basis of statements made by Mr. Jackson to the police, I find that on these various occasions there was removed from the boxes the entirety of the moneys which had been deposited therein. These were taken by Mr. Jackson to his home. On 17 March 1986 Mr. Jackson made a complaint to the Brisbane Police. He claimed to have been defrauded in three transactions in which he had paid over a total of $4.35 million in cash to a Mr. Carl Jorgensen in exchange for stones which Mr. Jorgensen claimed to be diamonds but which were in fact cubic zirconia, having a value of no more than about $2,000. On the basis of Mr. Jackson's statements I find: 1. He himself was not an expert in diamonds. 2. He was, however, a businessman of considerable experience who claimed to have, or to control, assets with a net worth exceeding $11 million. 3. He took no steps to have any of the stones handed to him by Mr. Jorgensen valued or checked by any person 5. experienced in identifying diamonds, either at the time each transaction took Place or subsequently, until each of the transactions was complete and the entirety of the $4.35 million had been paid over. 4. <A period of about a day separated each transaction. No steps were taken to have the stones received after the first or second transactions identified as diamonds before any subsequent transaction took place. 5. No record of the transactions was kept or - - -made by Mr. Jackson or any person on his behalf; no receipt for the money was obtained; no diary entry was kept. There is even today no book entry recording rremeesver oro —-me them, nor is there: any record of Mr. - -- 'Jorgensen's' address": . . The judgment then discussed the improbability of the story Mr. Jackson had told and certain evidence suggesting that, a mere two weeks before, Mr. Jackson had obtained a quantity of cubic zirconia in Hong Kong. His Honour noted that Mr. Jackson had called no evidence to rebut these allegations before him, and I note that again no such evidence was called before me. Mr. Jackson at both hearings has refrained from entering the witness box. Sheppard J. said: "In those circumstances I have no hesitation in accepting the evidence upon which senior counsel for the applicant relies ... It establishes, in my opinion, that the story about Mr. Jackson's purchase of stones from Mr. Jorgensen was false. ... What follows from that conclusion? The $4.3 million went in three consignments to Mr. Jackson's home. In the absence of evidence to the contrary, it should be inferred that he still has control of it or has acquired assets which represent it. ... In different factual circumstances there may have been a question as to whether or not the money was Mr. Jackson's money, but' the evidence establishes that he has treated it as his own. It was he who secured its withdrawal and lodgment in several deposit boxes in his and his wife's name. Subsequently he took it to his house." His Honour referred to "the inference that the money is property samme ——-thus available. to satisfy- any: judgment--which the applicant may recover", and added: se eae es) poe "Phe very actions of Mr. -Jackson' in endeavouring to conceal (scil. this) money reinforce me in concluding that that inference should be drawn.... Over all those companies Mr. Jackson exercised such control that it would have been a simple matter for him to transfer the property in the money to himself. There is no evidence to the contrary and, for the purposes of these proceedings, it is the inference which should be drawn." Later in his judgment Sheppard J. stated: "It should be made clear that on the evidence the sum of $4.3 million is by no means the only sum of money which it may be accepted Mr. Jackson has, or has control of. His applications to the finance companies towards the end of last year showed, as I have earlier said, that the Jackson interests had assets exceeding in value some $1] million." His Honour proceeded, after a discussion of the legal principles involved, to make orders including an order (the order numbered one referred to earlier in these reasons) that Mr. Jackson provide security in the sum of $3 million (in a form for which his Honour provided) not later than 2-30PM on Friday 2 May 7. 1986, and that, in the event this order not be complied with, Mr. Jackson file an affidavit deposing to his present assets and liabilities and certain other matters. In the course of his discussion of the grounds for making such orders, his Honour said: "Tt is the very extraordinary and unusual circumstances of the case and the systematically and blatantly fraudulent conduct of Mr. Jackson which the applicant - submits call for an order of the extreme kind here claimed." _caiem-He ire carmwsum 'Dhe- passages: Iu.have quoted contain-what seem to me to be the relevant findings of fact which, by virtue of counsel's concession, must be taken into account in the present proceeding. It needs to be added that there is no dispute that the security which Sheppard J. ordered to be provided by 2 May last has not been provided. Instead, Mr. Jackson filed in the Registry of this Court in Brisbane a debtor's petition under s.55 of the Bankruptcy Act 1966, and instructed his solicitors to forward to the applicant's solicitors a letter dated 30 April 1986 in the following terms: "We refer to our earlier facsimile of today's date and our telephone conversation this morning with your Mr Davey's secretary and confirm that we have arranged for this matter to be re-listed before His Honour Mr Justice Sheppard at 9.15 a.m. on 1 May 1986. At that time, we will be making = an application to the Court seeking an order as follows: "An order that the order made by this Honourable Court on 23 April 1986 that the second respondent provide security in the sum of $3,000,000.00 in such manner and form as the parties may agree or, in default of agreement, the Court or its Registrar may approve, be discharged.' The grounds of the application are as follows: 1. That on 30 April 1986 the second respondent John William Jackson presented to the Registrar of the Federal Court of - - - -- Bankruptcy, Brisbane, a petition against himself accompanied by a statement of his affairs, verified by affidavit, and a copy of the statement. . wy ox«2..26 "That a regiscrered- trustee -has' consented to act as the trustee of the estate of John William Jackson. 3. The said petition was accepted by the Registrar on 30 April 1986. 4. That upon acceptance of the said petition by the Registrar, John William Jackson became a bankrupt. 5. That upon John William Jackson becoming a bankrupt, all the property of John William Jackson vested forthwith in the registered trustee. 6. As a bankrupt, John William Jackson cannot, as a matter of law, assuming he was in a position to do so, comply with the order of 23 April 1986 that he provide security in the sum of $3,000,000.00. We are awaiting receipt from Brisbane of an affidavit in support of the application and as soon as it is to hand we will serve a copy upon you." Notwithstanding the terms of this letter, the Registrar did not in fact accept the debtor's petition filed by Mr. 9. Jackson, upon its being filed, and has since been restrained from doing so by virtue of the ex parte order of Beaumont J. and its subsequent continuance by me. Before the foregoing events had occurred in relation to orders made by Sheppard J. and the debtor's petition lodged by Mr. Jackson, the proceeding in relation to which Sheppard J. had made his orders had come on for hearing before Neaves J. On 29 April 1986 he gave judgment against (inter alios) Mr. Jackson for the sum of $3,250,000-00 plus costs. The applicant's case before me is a simple one. The applicant says that, at the least, the facts found by Sheppard J. and the subsequent events proved before me combine to raise a prima facie case that Mr. Jackson's purported presentation of a debtor's petition under s.55 of the Bankruptcy Act was an abuse of process which the Court should restrain. The applicant says that this prima facie case raises a serious question to be tried within the meaning of the principles discussed in Epitoma Pty Ltd ve AM.I.E.U. (1984) 3 F.C.R. 55 and in State of Queensland v. Australian Telecommunications Commission (1985) 59 A.L.J.R. 562 at 563. If that is so, it can hardly be doubted that the discretionary considerations favour the grant of relief to prevent the abuse. In my opinion a sufficient case is made out. In Clyne v. Deputy Commissioner of Taxation (1984) 154 C.L.R. 589 at 599 10. the joint judgment of Gibbs C.J., Murphy, Brennan and Dawson JJ. contains the following: "We agree with the conclusion stated in In re Mottee (1977) 29 F.L.R. 406 at 412 that a bankruptcy resulting from the acceptance of a debtor's petition may be annulled if the presentation of the petition was an abuse of the procedure provided by s.55." Their Honours went on to discuss certain cases that throw light on what constitutes an abuse of the procedure in question, and then commented: "In our opinion, a distinction must be drawn between the pursuit of 'an ulterior private purpose' - which may not necessarily amount to an abuse of process - and a purpose foreign to the nature of the process in question... It is a purpose foreign to the bankruptcy laws, and an abuse of process, for a debtor to present a petition for the purpose of making it impossible for a creditor to obtain a sequestration order ona pending petition and with the further purpose of shortening the period of relation back, possibly placing beyond the reach of the trustee property which would otherwise vest in him." It seems to me that equally it is a purpose foreign to the bankruptcy laws, and an abuse of the procedure under s.55, for a debtor to present a petition for the purpose of making it impossible for an order of this Court, which it is within his capacity to obey, to be enforced by contempt proceedings against him. At least this must be so if he is not in fact insolvent. In the case which is referred to in the passage I have quoted from the joint judgment of the High Court in Clyne's Case, Re Mottee, "di. Riley J. said (at 415), of the right to file a debtor's petition, that it "will not extend to the length of allowing the debtor to use the bankruptcy law in order to assist him in committing frauds on his creditors". See In re Betts; Ex parte Official Receiver [1901] 2 K.B. 39 at 41; and see also Bayne v. Riggall (1908) 6 C.L.R. 382 at 404 and Bayne v. Blake (1909) 9 C.L.R. 347 at 356, 359. " More than- a century ago, in-Ex parte Hewitt; In Re Drinkwater (1862) 31 L.J. (NS) (Cases in Bankruptcy) 83 at 85 Turner L.J. distinguished between a bona fide presentation of a debtor's petition "to distribute his property amongst his creditors" and "a case of an application directly made against a particular creditor", which he clearly regarded as foreign to the purposes of the bankruptcy laws. In my view, in the present case, the inference is open that the presentation of the debtor's petition was nothing more than a continuance of the plan to defraud the applicant which Sheppard J. found Mr. Jackson had formed and pursued. An attempt was made, on behalf of Mr. Jackson, to argue that the evidence indicated he was insolvent, and that the contrary had not been shown. On this basis it was said the inference which I have discussed should not be drawn. However the applicant put before me the findings of Sheppard J., which Mr. Jackson's counsel conceded, and on those findings I hold that 12. 1t 1S open to reach the conclusion that Mr. Jackson is far from insolvent. His precise position is peculiarly within his own knowledge, and he has not chosen to go into the witness box and reveal it to me. In the circumstances, I have no hesitation in rejecting the argument advanced by his_ counsel. I have considered this question in the light of the comment made by Barwick C.J. in Sandell v. Porter (1966) 115 C.L.R. 666 at 670: "The conclusion of insolvency ought to be -- -f<-glear from a consideration of the debtor's - financial position -in its entirety and - «c's. generally speaking -ought not. to.be drawn simply from evidence of a temporary lack of liquidity. It is the debtor's inability, utilising such cash resources as he has or can command through the use of his assets, to meet his debts as they fall due which indicates insolvency." See also Re Sarina; Ex Parte Wollondilly Shire Council (1980) -30 A.L.R. 266 and on appeal 32 A.L.R. 596. It was further submitted on behalf of Mr. Jackson that, as a matter of discretion, I should be influenced against granting relief to the applicant because another creditor of Mr. Jackson has presented a creditor's petition for a sequestration order against him, the adjournment of which has been procured as a result of some negotiations between the applicant and that creditor. I am quite unable to regard this, or the evidence relating to it, as constituting a sufficient ground to refuse the applicant relief. "Dated: 5 September, 1986. 13. For these reasons I hold that the applicant, upon the undertaking as to damages which it has given, 1S entitled to a continuance, until further order, of the interlocutory injunction I have already granted in order to secure the position until delivery of this judgment. I so order. I reserve the costs of this application. fie ef aaalel ' suns rer - meoewr te out I certify that this and the preceding twelve (12) pages' are a true copy of the Reasons for Judgment herein of his Honour Mr. Justice Burchett. WZ, Chats Associate