< JUDGMENT No. S 13/22. NOT FOR GENERAL DISTRIBUTION IN THE FEDERAL COURT OF AUSTRALIA GENERAL DIVISION BANKRUPTCY DISTRICT OF No. P.622 of 1987 THE STATE OF NEW SOUTH WALES AND THE AUSTRALIAN CAPITAL TERRITORY RE: JOHN HUNTER TOWERS Debtor EX PARTE: MITCHELL'S CONCRETE PRODUCTS PTY LIMITED Petitioning Creditor CORAM: WILCOX J PLACE: SYDNEY DATE: 1 SEPTEMBER 1987 MINUTES OF ORDER THE COURT ORDERS THAT: 1. The matter be stood over until 9.30 a.m. on Thursday 3 September 1987. 2. The costs of today be reserved. NOTE: Settlement and entry of orders 1s dealt with in Bankruptcy Rule 124. NOT FOR GENERAL DISTRIBUTION IN THE FEDERAL COURT OF AUSTRALIA GENERAL DIVISION BANKRUPTCY DISTRICT OF No. P.622 of 1987 THE STATE OF NEW SOUTH WALES AND THE AUSTRALIAN CAPITAL TERRITORY RE: JOHN HUNTER TOWERS Debtor EX PARTE: MITCHELL'S CONCRETE PRODUCTS PTY LIMITED Petitioning Creditor CORAM: WILCOX J PLACE: SYDNEY DATE: 1 SEPTEMBER 1987 EXTEMPORE REASONS FOR JUDGMENT This matter has been referred 1nto Court by the Registrar because there is a contest between the parties as to whether there ought to be a further adjournment of the hearing of the sequestration order. The bankruptcy petition is dated 26 February 1987 and it appears from an affidavit of service which 1s on the file that the petition was personally served upon the debtor on 7 May 1987. The petition discloses that the petitioning creditor relies upon a judgment signed in the 2. Supreme Court of New South Wales on 11 October 1983. The judgment debt was apparently $55,931.50, but with accrued interest the amount now claimed by the judgment creditor 1s $85,685.47. Apparently the debtor formed an intention of opposing the making of a sequestration order, but he took no steps to file a Notice of Opposition prior to the hearing of the bankruptcy petition, as required by Rule 20 of the Bankruptcy Rules. The matter came before the Court on 23 June when the debtor was represented and indicated that he desired to file a Notice of Opposition. By consent, orders were made by the Registrar requiring the debtor to file his Notice of Opposition within seven days, that is by 30 June, and his affidavits in support of his Notice of Opposition within 21 days. The matter was stood over until 4 August, upon the assumption that, by that time, all of the preliminary matters would have been dealt with. I am told by counsel that there was some misunderstanding between the legal representatives of the parties about the hearing on 4 August and, in the event, there was no appearance on behalf of the debtor; but I attach no criticism to that fact. What happened was that the matter was stood over until 11 August, when the debtor was represented by counsel. The Registrar was, on that occasion, again told that there was a desire to oppose the petition and, apparently by consent, or at least without active opposition, the Registrar 3. made a further direction that the debtor file and serve both the Notice of Opposition and all affidavits upon which he proposed to rely by 25 August 1987. Once again, upon the basis that the matter would be in order on the next occasion, the matter was stood over until today. I am informed by the solicitor for the petitioning creditor that, as she understood, the matter would proceed to a hearing today and upon that assumption the son of the person controlling the judgment creditor came down from Newcastle with an appropriate affidavit of debt. This is perhaps a small matter but it emphasizes the lateness of any notice to the petitioning creditor about the possibility of an adjournment. It 1s conceivable that there may have been some problem because of a telephone message not being passed on and I do not distribute any blame. It 1S enough to say that, ata date which 1s now almost four months after the service of the petition and which is two months after the date upon which the Notice of Opposition was supposed to be filed pursuant to the first direction, the Court 1s asked to give to the debtor a third opportunity of putting his house in order. Certain documents have been produced to me this morning in order to indicate the nature of the defence to the petition which the debtor wishes to raise. It 1s conceded by his counsel that these documents are not in order for filing. However, 1t appears from them that the basis of the opposition to the making of a sequestration order will be that the debtor 4. is solvent and able to pay his debts. A number of affidavits have been shown to me which are incomplete but which deal with the debtor's financial affairs. It appears that the debtor, with his wife, controls at least two proprietary companies which carry on business and which possess certain assets. According to a balance sheet made up as at 30 June 1986, one of those companies, Quality Sand and Ceramics Pty Limited owes to the debtor a sum of $79,794.59 on a loan account. This 1s shown on the balance sheet as a deferred liability, although the accountant says in his affidavit that in fact the money is payable on demand. I accept what he says although I am puzzled that, if this was so, the same accountant should have described the liability as being a deferred liability. So far as I can see this is the only asset of the debtor revealed by the evidence as being held in his own name, at least as to the legal estate. There is another asset, a parcel of real estate upon which grazing activities are undertaken, known as "The Ridge", in which it is said that the debtor and his brother have a one half beneficial interest. It is not clear to me who is the registered proprietor of this land. It appears to be subject to a mortgage. Although it is possible that there 1s an equity in this land held by the debtor which is sufficient to pay off the present debt, it cannot be said that this emerges with any clarity from the material which has been produced. 5. Mr Montgomery, on behalf of the debtor, does not suggest that the material which he has been able to produce positively establishes that the debtor is able to pay his debts, within the meaning of that phrase in s.52(2) of the Bankruptcy Act 1966. What he does say 1s that there is information in these documents which ought to cause the Court to believe that a case of ability to pay his debts might be made by the debtor if given a further opportunity to do so. It is 1nappropriate for me to attempt to reach any conclusions as to whether Mr Towers 1s able to pay his debts or not. I do not have the mater1lal to enable this to be done, and what material has been shown to me has not been able to be tested in any way on behalf of the petitioning creditor. I think 1t is possible that, given sufficient time, Mr Towers could make out a case that he 1s able to pay his debts. But the question I have to decide is whether it is just, under all the circumstances, that he be given that further time. In this regard I have to bear in mind the history of the proceedings in this Court. No explanation whatever has been given to the Court for the failure of the debtor to comply with the directions given on the two earlier occasions; indeed no explanation is given as to why the debtor did not comply with the rules by filing a Notice of Opposition prior to the return date of the petition. The debtor is a man of business who has at all times been represented by solicitors and by his own accountant, who has looked after his financial affairs for many years. It 1s 6. difficult to avoid the conclusion that the debtor and those acting on his behalf have treated with disdain both the rules of the Court and the directions which have been given. I think that 1t 1s only in a case where a proper explanation has been provided, or where there 1s reason to believe that a serious injustice will be sustained, that the Court should give a third opportunity to a person to file the appropriate documents. As I have said, no explanation has been given in this case. I have pressed counsel for the debtor upon the second question, namely the possibility of injustice. He says that, although Mr Towers 1S able to pay the debt the subject of the petition, he has chosen not to do so because he has a dispute with the principal of the creditor company, namely Mr Noel Francis Mitchell, regarding the circumstances surrounding an agreement made between companies controlled by the two gentlemen back in August 1981. As I understand the position the judgment debt arose out of a claim by Mitchell's Concrete Products Pty Limited against Mr Towers on a guarantee of the performance by his company, then known as Rainbow Sands Pty Limited and now known as B A Mitchell Sands Pty Limited, in respect of the purchase by that company of a business conducted by Mitchell's Concrete Products. The Supreme Court judgment was obtained by default, and no application has ever been made to set aside the default judgment notwithstanding the lapse of almost four years since judgment was signed. However, very recently, after the service of the bankruptcy petition, an action was commenced in the Supreme Court of New 7. South Wales by B A Mitchell Sands Pty Limited against Mitchell's Concrete Products Pty Limited and Mr Mitchell alleging a breach by the two defendants of the agreement for the sale of the business in August 1981. I say nothing as to whether this action has any merit; that will be a matter for determination in the Supreme Court in due course. I have been concerned as to whether there would be any effect upon the ability of the plaintiff in that action to prosecute the action on its merits if a sequestration order were now made against Mr Towers. I cannot see that this would be so. The Supreme Court action 1s brought by a different plaintiff, that is the company rather than Mr Towers. It may well be that Mr Towers would be limited in the control he could directly exercise in relation to the prosecution of those proceedings by B A Mitchell Sands Pty Limited as a result from being disqualified as a director. But if he has control of that company -- as I assume he has, given the embarkation on the Supreme Court action -- one would have thought that other directors would continue to carry out his desires. So far as I can see the making of a sequestration order will not affect the future course of the Supreme Court action; but I must say that, 21f I am wrong about that, it is not a matter which I would regard as necessarily decisive. I have to bear in mind that the Supreme Court action 1s brought almost s1x years after the contract was made and the first alleged defaults occurred, and three and a half years after judgment against Mr Towers was obtained without any defence or other action being commenced at that time. If parties choose 8. to sit upon their rights for many years I think that they cannot complain too strongly if, by some intervening event, they find difficulty in prosecuting an action at a later time. In my opinion there is no warrant for giving to the debtor a further opportunity to put on documentation, including a Notice of Opposition and affidavits in support. I think that the sequestration order should be disposed of without further ado. However, I have inquired of Mr Montgomery whether, if I took this view, his client would wish to have an opportunity, which would have to be for a very short time indeed, to pay out the judgment debt rather than to suffer bankruptcy. He has asked for this opportunity. The solicitor for the petitioning creditor does not oppose this course being taken, although it is fair to say that she, as indeed counsel for the debtor, has no express instructions. If Mr Towers is indeed in a position to pay out the judgment debt, it would seem desirable that he be given the opportunity. I am therefore prepared to adjourn the matter until 9.30 a.m. on Thursday, 3 September. I indicate that, 1f by that time the judgment debt is paid out, then I would be prepared to dismiss the petition; if not, I would propose to make a sequestration order. I think, under the circumstances, 1t would not be necessary that a further affidavit of debt be provided, particularly as that involves somebody coming down from Newcastle for the event. 9. I stand over the matter until 9.30 a.m. on Thursday 3 September 1987. I reserve the costs of today. I certify that this and the eight (8) preceding pages are a true copy of the Reasons for Judgment of his Honour Justice Wilcox. Assoclate: Date: 9 October 1987 Appearance for the Petitioning Creditor: Ms Sally Nash, Solicitor Solicitors for the Petitoning Creditor: Sally Nash & Co Counsel for the Debtor: Mr R E Montgomery Solicitor for the Debtor: Mr Peter Kelso Date(s) of hearing: 1 September 1987