"Cé7 IN THE FEDERAL COURT OF AUSTRALIA GENERAL DIVISTON BANKRUPTCY DISTRICT OF THE STATE OF VICTORIA lA EX PARTE: Coram: Ryan J. Date: 17 December 1986 (FOR LIMITED DISTRIBUTION) No. EDWARD COOPER, SHIRLEY GLADYS COOPER, KYM PAMELA COOPER, CRAIG HENRY COOPER and ALAN EDWARD COOPER FIRST NATIONAL FINANCE LIMITED (formerly CHASE NBA FINANCE LIMITED) " REASONS FOR JUDGMENT The debtors have sought an adjournment of this petition for a sequestration order Edward Cooper, Shirley Gladys Craig Henry Cooper collectively called "the debtors"). support of the petition are indebted to the petitioner, ("First National") in the sum First against the Cooper, Kym Pamela and Allan Edward that each of $1,183,470 National Finance estates of each of Cooper, Cooper (hereinafter The grounds relied on in of the debtors is Limited for xy 1 O.8PR 1987 FEDEMAL COURT OF AUSTRALIA 2 FAINCIPA! | REGISTAY soy ES tet under a guarantee, ror which judgment was obtained in the Supreme Court of Victoria on 17 July 1385, and that each of the debtors has fa1led to comply with the requirements of a ral bankruptcy notice. The guarante2 on which each of the debtors became liable to First National was of performance by Moowinnybah Pastoral Co. Pty. Ltd. i"Moowinnybah") of its obligations under a mortgage granted to First National over certain land at Labertouche ("Binalong") to secure repayment by Moow1rnnybah of an advance of $1,200,000. As I have already recounted in a judgment on 16 December 1986 given ina related matter (Labertouche Sands Pty. Ltd. v. Moowinnybah Pastoral Co, Ftv. Ltd. VG 31 of 1385) Moowinnybah, had by an agreement dated 1 March 15984, granted to Labertouche Sands Fty. itd. a licence to extract sand from a certain part of ""Binalong" for a term from 1 March 1984 to 29 dune 1988. In the related matter, Labertouche Sands Pty. Ltd. has sought damages from Moowinnybah for contravention of 55.52 or 53A of the Trade Practices Act 1974 ("the Act") or at common law for fraudulent or negligent misrepresentations, or breach of certain collateral warranties. In addition, proceedings have been instituted in the Supreme Court of Victoria by Moowinnybah seeking the removal cf certain caveats lodged by Labertouche Sands Pty. Ltd. against the registration of any dealing in respect of "Binalong", invoking its interest in that land by virtue of the sand mining licence. First National as mortgagee of "Binalong", instituted proceedings un the Supreme Court of Victoria seeking orders for removal of those caveats. Tadgell J. declined to accede to an application for a summary order for the removal of the caveats, and those Supreme Court proceedings ar still w pending. n A sale of "Binalong" has also beén inhibited by two anterlocutory injunctions granted in this Court which are sti11ll in rorce. The earlier injunction granted on 16 April 1985 restrained Moowinnybah from preventing Labertouche Sands Pty. Ltd., 1ts servants, agents or invitees from having full and free access to that part of "Binalong" described as "Zone one" in the statement of claim. A second injunction granted on 30 May 1985 restrained Moowinnybah from selling "Binalong"" otherwise than subject to the following express condition of sale:- "The purchaser acknowledges and agrees that the property is purchased subject to the rights of Labertouche Sands Pty. Ltd. (if anv) under the terms of an agreement dated ist March 1984 entered into by and hetween Moowinnybah Pastoral Co. Pty. Limited and Labertouche Sands Pty. Ltd. and any alteration of variation of the terms thereof as may hereafter be ordered by the Federal Court of Australia in Proceeding No. VG91 of 1985 wherein Labertouche Sands Pty. Ltd. is the applicant and Moow2nnybah Pastoral Co. Pty. Limited, Edward Cooper and Reg Latimer are respondents." All of the facts which I have so far recounted had occurred and were in evidence when this petition came on for hearing Oe before Jankinson J. on 23 October 1986. Gn that day, his Honour refused an application for adjournment made on behalf of the first and seécond-named debtors, saying at p.31 of the transcript:- "The difficulty facing the two judgment debtors who apply for an adjournment of the hearing of the petition is that the evidence does not show any sound basis for a conclusion that as a matter of probability the obstacles which at present stand in the way of a realization of the property called 'Bainalong' will be removed within a reasonable time. There is, of course, a clear policy in the Bankruptcy Act against the pendency of petitions unresolved, quite apart from the anterest that the petitioner may claim to have in the speedy hearing and determination of his petition, and while the possibility clearly has been shown that given a period of several months the judgment debtors Edward and Shirley Gladys Cooper may be able to bring about a resolution of theie present difficulties which would Make bankruptcy unnecessary. It seems to me that nothing more than a possibility, - little more than a speculative possibility - has been shown. The financial circumstances of those two debtors are otherwise such that there is an obvicus interest in the judgment creditor to have those financial affairs brought as soon as possible under the scrutiny and control of a trustee because although the property called 'Binalong' may prove adequate as a souce of funds with which to discharge the debt to the judgment creditor, it cannot be seen as certain that that will be so, even 1f ome assumes ~ (as I would be prepared to assume for the purposes of this application) - that the debtors cannot in any event be liable, nor their estate liable, in bankruptcy for more than the amount claimed in the bankruptcy notice. Even on that basis it is, - on the evidence - not quite certain that 'Binalong' would provide sufficient, particularly since it cannot be known what effect the claim of Labertouche will have on the value as it is realized of 'Binalong'. In those circumstances, I do not think that the court would be justified in granting an adjournment of the kind which Mr. Heerev has sought on behalf of the two first named debtors. I think I should proceed with the hearing of the petiE1on." However, his Honour declined to consider whether to make a sequestration order then and there because the petition had been served only on the first two debtors, and not on the other three debtors. Accordingly, the further hearing of the petition was adjourned to 29 October 1986, when 1t was further adjourned to 24 November 1986, and then by consent to 8 December 1986. Certain events have occurred since 23 October 1986 which are relied on by counsel for the debtors as constituting new facts and circumstances which should induce the Court to take a different approach to the exercise of its discretion to grant an adjournment, from that indicated by Jenkinson J. in the passage quoted above. Those events may be summarized as rollows:- (1) Pacific Basin Resources (Aust) Ltd. ("Pacific Basin") and one Walter Howard Joyce have expressed renewed interest in purchasing from the first two debtors for $1,500,000, the two shares which represent all of the issued capital in Moowinnybah. Pacific Basin and Joyce had previously executed on or about 5 May 1986 an agreement to purchase those shares for the same price, the balance of which was payable on 4 July 1986. However, the purchasers experienced difficuity in obtaining the necessary finance and, on 22 October, Mr. and Mrs. Cooper as vendors elected to treat the agreement as discharged, whereupon the purchasers forfeited their deposit of $135,000. It has been aundicated in an affidavit of one Martin Edwards sworn 8 December 1986 by way of hearsay (to which objection was taken by Mr. De Wiijn for the petitioning creditor), that Pacific Basin and Mr. Joyce are in the course of finalizing arrangements to obtain the necessary finance and "are ready and willing to enter into a fresh agreement in identical terms to" the previous agreement of 5 May 1986 "to purchase the shares for $1.5 million." It was further deposed by Mr. Edwards that one Palmarni, a director of Continental Credit Corporation which was arranging the finance, was expected to arrive in Melbourne on 10 December 1986 "to settle the purchase of the shares". Mr. Edwards also gave oral evidence to the effect that Mr. Palmarni wished to have personally confirmed to him by the valuer, a valuation of "Binalong" furnished to Pacific Basin and Mr. Joyce on 12 September 1986. A copy of that valuation was tendered 1n evidence before me. It disclosed that Mr. M. O'Halloran. F.A.I.V. had on 28 April 1983, valued "Banalong" at $2,302,800 taking account of its proven sand deposits, its unproven land zoned "Extractive" and its dairy land with (11) improvements. Further. y letter dated 12 September 1386, Mr. O'Halloran indicated that he had again inspected the property on 11 Saptember 1986 and that, in his opinion, the earlier valuation "has not diminished in value and can be relied on for financial purposes". ""Binalong" had also been valued on 2 March 1984 by Mr. Peter Lynch of Colliers International and Property Consultants Pty. Ltd. at 62,450,000. There was also tendered on behalf of the debtors an affidavit sworn by Andrew Henry Joseph, the solicitor for Labertouche Sands Fty. Ltd., which was sworn on 3 December 1986 and filed in the related proceedings VG 91 of 1985. That affidavit deposed to negotiations between First National and Labertouche Sands Pty. Ltd. culminating in an agreement "in principle" which was reached at the end of November 1986. Mr. Joseph then Went on to depose that: "That agreement, which is not yet in an enforceable form, was, in short, ,that First National would realize its securty and pay * $200,000-00 from the proceeds thereof to the Applicant CLabertouche Sands Pty. Ltd.J in return for a Withdrawal of its Caveats over 'Binalong', vacant possession of the sand mine thereat, and an assignment of the right, title and interest of the Applicant CLabertouche Sands Pty. Ltd.J in the plant and equipment at 'Binalong'." In commenting on the matters adverted to ain "Mr. Joseph's artridavit, Mr. Berryman, the National Manager of First National, in an affidavit sworn on 9 December 1986 deposed: "a, The petitioning Creditor has entered into negotiations with the liquidator or Labertouche Sands Pty. Ltd. with a view to securing an agreement which would enable the caveats that have been lodged over the land registered to Moowinnybah Pastoral Pty. Ltd. to be removed anda mortgagee Sale effected. 5. No agreement has been executed between the parties and there is no enforceable agreement in existence." Mr. Tribe of counsel for the debtors argued that it would be @ proper exercise of the Court''s discretion to adjourn the petition because there was a good prospect either that First National would effect a sale of "Binalong" as mortgagee, or that the first and second debtors would receive $1,500,000 from the sale to Pacific Basin and Mr. Joyce of their shares in Moowinnybah. In conjunction with those alternative prospects, reliance was placed on the fact that the petitioning creditor 1s, effectively, the only creditor of the debtors, and on the likelihood that the stock and station agent's business carried on by the first-named debtor, Edward Cooper, would be destroyed if a sequestration order were made. It was also suggested, in the course of oral evidence given by Mr. Cooper, that there was a danger that the extractive industries licence and the dairy licence attaching to "Binalong" might be forfeited if he were made bankrupt and thereby unable to ensure that the respective conditions to which those licences are subject, continue to be fulfilled. I consider, with respect, that the general principle ' which should guide the Court on an application of this kind is that identified by Dixon CJ in the following passage from Faulkner v. The Commonwealth (1962) 36 ALJR 352 at 354:- "Prima facie the statute appears to me, and bankruptcy legislation in the past has been so interpreted, to mean that if the conditions for bankruptcy are made out, the bankruptcy should take place unless in the interests of the bankrupt or the creditors or both, having regard to the general circumstances, it would be preferable to allow some other course to take place." That a petitioning creditor can have recourse to security over certain assets of some cther person may be a cogent factor influencing a court not to make a sequestration order. Thus, in Re Nove ex parte Deputy Federal Commissioner of Taxation (1956) 18 ABC 77 Clyne J. observed, at 78:- "While ait may be sufficient cause in some circumstances for refusing to make a sequestration order and dismissing a petition that a judgment creditor has equally good and available facilities for enforcing his judgment, it is for the Court in its discretion to decide whether such a sufficient cause has been established and in exercising this discretion it must consider the relevant facts and circumstances." - 10. The relevant facts and circumstances in the present case appear to me to be EbChose which bear on whether "Binalong", or the shares in Moowinnybah, can be sold for a sufficient price to repay the principal and interest due to the petitioning creditor, and how long 1t will be before the proceeds of any such sale become available. The contemplated sale to Mr. Joyce and Pacific Basin of the two issued shares in Moowinnybah has the attraction that settlement would take place ina relatively short time. However, if the sale is on terms identical to those contained in the previous agreement of 5 May 1986 the vendors would be obliged at or before settlement to procure a discharge from First National of its mortgage over "Binalong" and all its other securities against Moowinnybah, and the release of a mortgage or charge over "Binalong" in favour of Louise Garome Nadenbousch and Ian Reginald Nadenbousch which was warranted in May 1986 to be securing a debt of not more than $15,000. In addition, the vendors at or before settlement would have "to procure Kenneth Maxwell Wright to release (Moowinnybah) of its liability to the said Wright and themselves provide substitute securities for the said debt." In the agreement of 5 May 1986 the amount of that debt was recited to be $70,000, and I was informed that it 1s repayable "within four years". I assume it to be the same debt which was acknowledged in an affidavit of the first debtor sworn on 23 . ll. October 1986 as being in the sum of 560,000 payable within four years to the said Wright by the first and second debtors. In an affidavit sworn in or about April 1986 Mr. Berryman on behalf of First National in the Supreme Court proceedings, and which has been put in evidence before me, it was indicated that Moowinnybah was indebted to First National in a sum of not less than $1,407,842 and that interest on the mortgage debt was accruing at the rate of approximately 318,500 per month. On that basis, even if settlement of a purchase by Pacific Basin and Mr. Joyce could be effected in January 1987, an amount of more than 61,574,000 would be needed to procure the discharge of First National's mortgage over "Binalong". In addition it mav be necessary for Mr. and Mrs. Cooper to repay or give other security for up to $85,000 in respect of the debts owed to Mr. and Mrs. Nadenbousch and Mr. Wright. Provision would also have to be made for the vendors' costs and disbursements in connection with the sale of the shares in Moowinnybah. When regard is had to these matters, as well as to the high degree of uncertainty whether a sale of the shares will ever occur it is clear that the prospect of such a sale, in the absence of any firm proposal for meeting the deficiency thereon, should not weigh with the Court as a ground for adjourning the hearing of the petition. Similar considerations apply to the prospective sale of "Binalong" by First National as mortgagee. Despite the high valuations which have been put on the property, there is no evidence of any other purchaser willing to pay more for the property than the price of $1,500,00 offered by Pacific Basin and Mr. Joyce for the shares in Moowinnybah. The inference that "Binalong" is not readily realizable for more than $1,500,000 is confirmed by the evidence of Mr. Earle, the solicitor for the debtors, that when First National conducted an auction of the property on 31 May 1985 "the auction failed", which I take to mean that no bid was received which was suificiently high to recoup to First National the unpaid principal and accrued interest due under its mortgage together with the costs and expenses of sale. Having regard to the rate at which interest is continuing to accrue, and the amount of $200,000 which would have to be paid out of the proceeds of sale to Labertouche Sands Pty. Ltd. for dissolving its interlocutory injunctions and withdrawing its caveats, 1t cannot be assumed that a sale after the removal of those impediments would yield enough after payment of costs and expenses to satisfy fully the debt to First National. The lack of weight to be given to that alternative prospective sale becomes even more apparent when it is remembered that 1t would probably be late May 1987 before the balance of the price ona mortgagee's sale of "Binalong" would be received, ° 13. Accordingly, I am not persuaded that the prospect of a sale either of the shares in Moowinnybah or of "Binalong" should lead me to further adjourn the hearing of this petition. Nor does the fact that First National is the main creditor of the debtors, and perhaps the only one pressing for immediate payment of its debt, taken alone or in conjunction with the prospect of cealizing "Binalong", induce me to adopt that course. It is clear that there are other creditors, at least of the first and second debtors, excluding trade creditors, namely, the ANZ and National Banks, (both of which have security over property other than "Binalong"), Mr. and Mrs. Nadenbousch and Mr. Wright, whose debts together amount to about $130,000. In the second place, even if First National were the only creditor, that would not be conclusive in favour of an adjournment or dismissal of the petition. It would be only one matter to be weighed in the exercise of the Court's discretion, as is indicated by the following passage in the judgment of Lindley L.d. In Re Hecquard. Ex Parte Hecquard (1889) Q.B.D. 71 at 76:- "Tf the debtor has only one creditor this is a point to be considered by the registrar on hearing the petition, but it cannot be laid down as a matter of principle that, if there is only one creditor, the registrar ought to dismiss the petition, The trustee ina bankruptcy may be able to set aside transactions and get in assets which could not be set aside or got in without an adjudication of bankruptcy. The mere fact that a man has only one creditor is not a_ sufficient ground for saying that bankruptcy proceedings cannot be maintained against him." it, I do not consider that the possible or likely effects of the bankruptcy of the first debtor on the conduct of the business of a stock and station agent, or on the retention of the extractive industries and dairy licences attaching to "Binalong" constitute grounds for an adjournment of the petition. The stock and station agency, on the evidence, generates income of only $12,000 a year or s0, and has no prospect, in the short term, of contributing substantially to the payment of the creditors of the first and second debtors. The need to preserve the extractive industries and dairy licences to ensure a sale of "Binalong" at the best price has no doubt been present to the mind of the petitioning creditor which persists in seeking a sequestration order. In any event, that consideration seems to me to be relevant rather to the substantive question of whether there is "other sufficient cause" within 5.52(2)(b) for dismissing the petition. The application for further adjournment of the petition is therefore refused, and I shall hear counsel on that substantive question as soon as may be convenient. Iocertify that this and the preceding thirteen (13) pages are a true copy of the Reasons for Judgment herein of the Honourable Mr. Justice Ryan. RYVAAA NES Associate Dated: /? ace meer 1 72¢