Courtyard BUP v Stockley [1999] FCA 463

FEDERAL COURT OF AUSTRALIA

Courtyard BUP 11747 v Stockley [1999] FCA 463 BANKRUPTCY - creditor's petition opposed on basis of debtor's alleged solvency - test for solvency - circumstances where debtor unable to pay debts as they fall due - where context is the repeated failure to realise assets and meet principal financial obligations Body Corporate and Community Management Act 1997 (Qld) Bankruptcy Act 1966 ss 5(2), 52(2)(a) Sandell v Porter (1966) 115 CLR 666 Cited Re Riggs; ex parte Commissioner of Taxation (WA) (1986) 9 FCR 149 Refd to THE COURTYARD BUP 11747 v KENNETH JOHN STOCKLEY Q 7175 of 1999 KIEFEL J 20 OCTOBER 1999 BRISBANE

IN THE FEDERAL COURT OF AUSTRALIA

QUEENSLAND DISTRICT REGISTRY Q 7175 OF 1999

BETWEEN: THE COURTYARD BUP 11747

Applicant

AND: KENNETH JOHN STOCKLEY

Respondent

JUDGE: KIEFEL J

DATE OF ORDER: 20 OCTOBER 1999

WHERE MADE: BRISBANE

THE COURT ORDERS THAT: 1. The estate of Kenneth John Stockley be sequestrated. 2. David Lewis Clout be appointed trustee of the estate of Kenneth John Stockley. 3. The petitioning creditor's costs be taxed and paid out of the bankrupt's estate. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA

QUEENSLAND DISTRICT REGISTRY Q 7175 OF 1999

BETWEEN: THE COURTYARD BUP 11747

Applicant

AND: KENNETH JOHN STOCKLEY

Respondent

JUDGE: KIEFEL J

DATE: 20 OCTOBER 1999

PLACE: BRISBANE

REASONS FOR JUDGMENT 1 The act of bankruptcy upon which the petition is founded, is non compliance with the requirements of a bankruptcy notice which was served on 10 December 1998. The petitioning creditor, a company incorporated according to the Body Corporate and Community Management Act 1997 (Qld), had obtained a judgment against Mr Stockley in the Magistrates' Court at Brisbane on 21 September 1998 in the sum of $25,915.15. Since the time for compliance with the bankruptcy notice passed two amounts have been paid towards satisfaction of that debt. On 26 May 1999 $11,228.79 was paid and a further sum of $3,000 was paid in July, leaving a balance presently due of $11,686.36. 2 The question which arises on the notice of opposition is whether Mr Stockley has the ability to pay. He admits that he is solvent, within the meaning of the Bankruptcy Act 1966 (see s 5(2)) and that the Court should therefore dismiss the petition (see s 52(2)(a)). 3 A person is solvent if they are able to pay their debts as and when they become due and payable. It has not however been held that this requires that all debts be paid instantly and the test is satisfied if assets, sufficient to satisfy the outstanding debts, can be realised within a relatively short period: see Sandell v Porter (1966) 115 CLR 666. Other cases provide that regard can also be had to other factors which might readily disclose whether a person is solvent or not. This arises particularly where some difficulty is experienced in the realisation of assets, as is here the case. 4 Mr Stockley's principal assets comprise a home, owned jointly with his wife, and commercial strata title units at Bowen Hills. On 6 September 1999 Mr Stockley and his wife entered into an agreement to sell their home for the sum of $750,000 and a deposit of $65,000 has been paid and released, as a condition of contract, to the mortgagee. The contract was due to settle on 11 October 1999 but the purchaser was not able to obtain finance. The sum for which the house was sold was some $150,000 less than its anticipated value. The amount owing on it is some $675,000 so that there might be some $10,000 coming to Mr and Mrs Stockley, if the purchase proceeds. It is not clear when that might be. 5 As to the strata titled units, at the time when the first list of assets and liabilities was sworn some $168,000 was said to be owing with respect to the original units held. One was sold at about that time and I was advised that some $44,000 was applied to the debt. A contract has also been executed, on 6 September 1999, for the sale of three of the units in the sum of $150,000. This would provide a balance to Mr Stockley of something in the order of $30,000, if the contract proceeds. The purchaser is the same person who has contracted to purchase the matrimonial home. 6 Mr Stockley is also a sole director and shareholder of a company CNS Distributors Pty Ltd. It is not a trustee company. It owns a development site in which the company is said to have equity to the extent of $284,000. This figure is based upon an amount of an earlier contract. The mortgagee has been in possession since May 1999 and from that time has attempted to sell the property. A contract was entered into for the sum of $600,000 and was due to settle on 15 June and then extended to 15 July. It has subsequently been terminated. The company owns another property in which a small amount of equity, of about $40,000 is said to be capable of realisation. No other contracts are pointed to. 7 Personal household effects do not appear to me to assume much relevance in proceedings such as this. It has not been suggested that sale of any of them would satisfy debts which are owed. Similar observations apply to the motor vehicles listed. The principal liability is owed to the mortgagee who appears to have advanced on most of the properties. No other liabilities are listed. I was told that the debtor has attended and been examined in December 1998. 8 A number of factors emerge with respect to the question of solvency: (a) In the event that the sale of the matrimonial home and the strata title units were effected and the mortgagee paid out, there would be some, but not a great deal of, monies due to Mr Stockley, assuming that the mortgagee was not entitled to have them applied to the other property, owned by the company; (b) Over nine months has passed since the bankruptcy notice was served and attempts to realise the value of each of the properties have not been successful. It is not possible to say when they might settle. The property owned by the company is not subject to any current contract. Since the bankruptcy notice was served the mortgagee has gone into possession, and Mr Stockley has attempted to pay out this debt. (c) The last mentioned factor assumes some importance. It is the fact that Mr Stockley has been unable to pay what is a relatively small sum. (d) Schedules of the sums due and the payments made by Mr Stockley disclose that he and his company have been unable to meet mortgage payments since about November 1998. Only a fraction of the substantial arrears have been paid. I note also that the mortgagee required the deposit on the house property to be released to it in reduction of the mortgage debt. 9 I am conscious of the possibility that monies might yet be received from a sale of the properties. Nevertheless it seems to me that Mr Stockley cannot be adjudged solvent. He is clearly unable to meet his debts as they become due from his own income and cash reserves. He has been unable to meet his obligations to his principal creditor for some time. Despite attempts to realise the properties he has not been able to do so. In these circumstances I do not think that the properties can now be taken into account as part of the sums available to Mr Stockley to meet his debts "as they fall due". 10 For these reasons I am not satisfied that Mr Stockley is solvent. The material otherwise discloses that the debt is due and owing to the petitioning creditor. The solicitor for Mr Stockley relied upon an alleged deficiency in the affidavit verifying the petition. The affidavit was sworn by Mr Skarparis who was the Chairman of the petitioning creditor and deposed to having access to the books and records of the applicant. He deposed to the fact of the judgment and that Mr Stockley had not paid or made any arrangement to pay, the sum referred to in the bankruptcy notice. It is not suggested that the statement was inaccurate. The solicitor for Mr Stockley pointed to the decision in Re Riggs; ex parte Commissioner of Taxation (WA) (1986) 9 FCR 149 which was concerned with proof of the currency of a debt at the hearing of the petition in the context of a large operation such as the Taxation Office. It is not relevant to the facts of this case. In the present case the affidavit of debt, filed by leave at the hearing of the petition, was sworn by the treasurer of the petitioning creditor who had access to the books and records of it. She deposed to the sums which had been received in partial satisfaction of the debt. Again it is not suggested that they are inaccurate. The point has no substance. 11 I am satisfied that a sequestration order ought to be made. David Lewis Clout will be appointed trustee of the estate of Kenneth John Stockley and the petitioning creditor's costs will be taxed and paid out of the bankrupt's estate. I certify that the preceding eleven (11) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Kiefel.