Commonwealth Development Bank v Wood, John Henry [1998] FCA 1684

FEDERAL COURT OF AUSTRALIA

BANKRUPTCY – application for adjournment of creditor's petition – debtor seeks an opportunity to generate value from specified assets – whether "sufficient cause" under par 52(2)(b) of the Bankruptcy Act 1966 (Cth) for sequestration order not to be made

Bankruptcy Act 1966 (Cth) s 52(2)(b)

COMMONWEALTH DEVELOPMENT BANK v WOOD No VG 7592 of 1998 JUDGE: NORTH J DATE: 30 NOVEMBER 1998 PLACE: MELBOURNE

IN THE FEDERAL COURT OF AUSTRALIA

VICTORIA DISTRICT REGISTRY VG 7592 of 1998

BETWEEN: COMMONWEALTH DEVELOPMENT BANK

APPLICANT

AND: JOHN HENRY WOOD

RESPONDENT

JUDGE(S): NORTH J

DATE OF ORDER: 30 NOVEMBER 1998

WHERE MADE: MELBOURNE

THE COURT ORDERS THAT: (1) The estate of the judgment debtor be sequestrated. (2) The petition in creditors' costs, including any reserve costs, be taxed and paid in accordance with the Bankruptcy Act 1966 (Cth). Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA

VICTORIA DISTRICT REGISTRY VG 7592 of 1998

BETWEEN: COMMONWEALTH DEVELOPMENT BANK

APPLICANT

AND: JOHN HENRY WOOD

RESPONDENT

JUDGE(S): NORTH J

DATE: 30 NOVEMBER 1998

PLACE: MELBOURNE

EX TEMPORE REASONS FOR JUDGMENT 1 On 12 August 1998, the Commonwealth Development Bank of Australia Ltd presented a creditor's petition to the Court for the making of a sequestration order against the respondent, John Henry Wood. The basis of the petition was the failure of Mr Wood to pay the balance of about $429,000 of a judgment of the Supreme Court of Victoria, given on 21 August 1997. 2 Mr Nolan appeared today as counsel for Mr Wood. He sought an adjournment of the petition until the end of February or early March 1999. The adjournment application assumed that Mr Wood was presently insolvent but may well be in a position to pay all creditors in full if he had the intervening time to generate value from two principal assets. At least that time would allow Mr Wood to further report as to the progress of generating such value. Mr Nolan contended that, if a sequestration order were made today, the unsecured creditors would get nothing. The delay could only advantage them. 3 The first asset in question is a rural property of over 400 hectares, 15 kilometres north of Bendigo. Mr Wood is in the process of applying for a permit to develop part of the site into 300 residential blocks. If that is achieved, he estimates the value of the property at between $4,000,000 and $4,500,000, without any civil works being undertaken. This view is broadly supported by a letter from the development manager, tendered as an exhibit to an affidavit sworn today by Mr Wood. Mr Wood also deposes that the Greater Bendigo Council has given in principle approval to the project. On the other hand, the bank has obtained a valuation from David McKenzie, a certified practising valuer. He values the property, in its undeveloped state, at $700,000. As to the proposed development, Mr McKenzie stated in his report: "The subject property is outside the declared sewerage area, which only proposes to service existing houses within the township.[A subdivision of the subject property under the existing zoning would require only septic tank waste disposal systems. In all likelihood, any permit allowing subdivision under these terms would also require the construction of a 2-megalitre dam on each proposed lot.] However, a subdivision with a greater lot density, such as that most recently proposed by the owner (250 residential lots) would require the provision of fully reticulated water and sewerage. Town Planning consultant, Trevor Budge (who has been working on development plans of the property for the owner) has informed me that Coliban Water has costed, on a preliminary basis only, the extension of water and sewerage mains to the subject property at approximately $1.5 million dollars. It is assumed that this costing is only after the township of Huntly has been serviced about 18 to 24 months into the future." 4 This opinion is relevant in assessing the likelihood of the progress of the development in the reasonably near term. Mr McKenzie also stated, as to the suggestion that the Council has given its in principle support, as follows: "At the meeting previously mentioned, Council's 'in principle' support was sought, and received. However, it is my opinion that not too much should be read into this expression of support. Council can give this support without any obligations or responsibilities, and it really means nothing more than encouragement to go ahead and do a bit more work on the proposal. It certainly should not be taken as indication as to likely success or otherwise of a submission. Mr McKenzie then made some relevant general remarks, as follows: "Whilst the property has some degree of development potential greater than simply rural enterprise, it is not considered that its location or its inherent physical features make it a prime candidate for development of any type in the short to medium term. A rural residential subdivision is located immediately to the east of the subject land. The style of this estate is similar to that which would be allowed under the current zoning. Further rural residential lots are available further south along Inglis Road, and further east along Wakemans Road. Selling agents report that there is very little demand in this area, and there has been very little demand for several years. When a sale is negotiated, prices tend to average around $40,000-$45,000 for an 8 Ha block down to $25,000-$30,000 for a 4 Ha block. Demand for new land in this district is currently so poor that it would be folly to develop more of the same in the short to medium term. The project would simply not be viable, (or at least, certainly not self-funding). To my mind, the development proposal currently being touted; that of the integrated lakefront village is also a very long-term prospect. The project is conservatively 12 months away from any firm development approval, assuming all goes smoothly. If objections from local land‑holders, referral authorities or other stakeholders are received after exhibition of the proposed amendment, approval, if granted at all, could be more like two years away." Finally, Mr McKenzie stated that, if the permit were obtained, it would not add more than 10 to 15 per cent to the value of the property. 5 The second principal asset is a parcel of 16,000,000 shares in a public company, Alpha Sensors Ltd. Mr Nolan contended that the shares trade at approximately thirteen cents a share. Mr Wood expects that they would rise if certain business dealings come to fruition. If the parcel rose by two cents per share, Mr Wood would be able to pay all his creditors. There is no evidence of the prospect of the shares rising in value. I would not adjourn the application to allow further evidence on this aspect because Mr Wood has had a full opportunity to present all the evidence he required. Further, there is a real question whether an increase in the value of the shares would, in law, sufficiently alter Mr Wood's position. His evidence indicates that the shares are the property of his family trust. His asset is a loan of $525,250 to the family trust. Apparently the loan was used to buy the shares. Against this, Mr Nolan said that Mr Wood was prepared to treat the asset of the trust, namely the shares in Alpha Sensors Ltd, as if they were his property in respect of repayment of his creditors. 6 The matter has had a long history, which is documented in the affidavit of Mr Doherty and which it is unnecessary to now set out in detail. Many discussions have been held between the bank and Mr Wood and many proposals floated. While it is a serious step to make a sequestration order against a person, I can see no reasonable grounds for refusing such an order. The development property is most unlikely to come to fruition in the medium term of, say, twelve months and, even then, at best for Mr Wood and accepting Mr McKenzie's valuation, would not provide a sufficient increase in value to assist his overall financial position significantly. As to the Alpha Sensors shares, there is a real doubt that these shares legally belong to Mr Wood and if, accepting Mr Wood's intention, the proceeds were available to pay his debts, there is no evidence of a likely increase in value of those shares. In my view, the material produced does not justify an adjournment of the hearing of the petition, either for a short time to allow further evidence to be produced in relation to either of these two assets and their ultimate fate, or for any other reason. Further, there are no grounds for adjourning the hearing of the petition to allow further developments to occur with these assets. For the same reasons, the material does not satisfy me that there is sufficient cause, under s 52(2)(b) of the Bankruptcy Act 1966 (Cth), to refuse the sequestration order sought. 7 The orders of the court will be: (1) The estate of the judgment debtor be sequestrated. (2) The petition in creditors' costs, including any reserve costs, be taxed and paid in accordance with the Bankruptcy Act 1966.