FEDERAL COURT OF AUSTRALIA Muller v Combis [2004] FCA 1722 JEFFREY ALAN MULLER AND LYNETTE ANNE MULLER v NICK COMBIS QUD7011/03 COOPER J BRISBANE 21 DECEMBER 2004 IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY QUD7011 OF 2003 BETWEEN: JEFFREY ALAN MULLER FIRST APPLICANT LYNETTE ANNE MULLER SECOND APPLICANT AND: NICK COMBIS RESPONDENT JUDGE: COOPER J DATE OF ORDER: 21 DECEMBER 2004 WHERE MADE: BRISBANE THE COURT ORDERS THAT: 1. The application for annulment is dismissed. 2. The applicants pay the costs of the respondent, including reserved costs, to be taxed if not agreed. 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 QUD7011 OF 2003 BETWEEN: JEFFREY ALAN MULLER FIRST APPLICANT LYNETTE ANNE MULLER SECOND APPLICANT AND: NICK COMBIS RESPONDENT JUDGE: COOPER J DATE: 21 DECEMBER 2004 PLACE: BRISBANE REASONS FOR JUDGMENT 1 This is an application by Jeffrey Alan Muller and Lynette Anne Muller pursuant to s 153B of the Bankruptcy Act 1966 (Cth). The application was filed originally on 26 September 2002 and was amended subsequently on 16 October 2002 and 31 October 2002. The basis of the application is that sequestration orders ought not to have been made on 1 March 2002 in relation to the estates of each of the bankrupts. The grounds relied upon are essentially: 1. That the applicants were unaware of the bankruptcy proceedings and were not served with the relevant documents; and 2. That they were both, as at the date of the making of the sequestration orders, solvent. 2 Before proceeding to deal with the merits of the application, I should record that yesterday I refused an adjournment of the proceedings to a date to be fixed on the part of the applicants who are presently in the United States of America. I gave short reasons yesterday as to why I refused that adjournment. Since that time, the male applicant has contacted the Court stating that he wished to put affidavit material before the Court as to the merits of the claim and further stating that he wished to put written submissions before the Court and requesting that the balance of the proceedings be conducted by telephone link between the Court and the United States of America. 3 He also stated that he wished to cross-examine the trustee. I am advised by the Deputy District Registrar that the male applicant was advised that if he forwarded copies of the material which he wished me to consider when the Court sat at 10.15 this morning, they would be made available to me and I would decide how to use that material. No material has been forthcoming. Further, I was of the view that the issues raised in the application do not require cross-examination of the trustee in order to be fairly and properly adjudicated. Consequently I was not prepared to agree to an arrangement whereby the balance of the proceedings were conducted by telephone link. 4 I also record that the applicants have had since yesterday at the latest the opportunity to engage counsel or solicitors to appear for them today. When the Court rose on the last occasion prior to resuming yesterday, it was on the basis that the applicants were leaving the Court to obtain legal representation in order to prepare for this, the adjourned hearing of their application. The material filed by the trustee indicates that the applicants did not go to the solicitor's office as they indicated they would and that they have not engaged nor sought to engage in recent times the said solicitor to act on their behalf. No fresh counsel has appeared today to make submissions on behalf of the applicants. 5 I turn now to the merits of the application. The question of the sufficiency and adequacy of the service of the petition was considered by Federal Magistrate Baumann on an application for review by the applicants. The learned Federal Magistrate found that the substituted service was good and proper service and he dismissed the application. There was no appeal from that determination. I am satisfied in any event on the material before me that the documentation was served at the residential address of the applicants. In my view it is more probable than not that they have actual knowledge of the content of the documentation. Therefore there is no basis to their contention that no sequestration order ought to have been made in relation to either of their estates because they were not served and were unaware of the proceeding. 6 I turn now to the question of solvency. The applicants have the onus of satisfying the Court that they could on 1 March 2002 pay their creditors as and when those creditors' debts fell due for payment in the normal course of affairs. The Court on such an occasion as this considers the assets, whether or not they could be turned quickly or reasonably to account and whether funds could be raised by borrowing against those assets in order to discharge the proper debts owed by the debtors within a reasonable time. The case mounted by the applicants essentially revolves around parcels of shares in two United States corporations which hold or were claimed to hold valuable technology. 7 The material does not show that it was possible to turn to account within a reasonable time any of the shareholding in a way sufficient to discharge the creditors. I simply reject the evidence of the male applicant that he was unaware that his creditors were pressing. The statement of affairs ultimately filed acknowledges some as creditors but generally speaking it is absolutely devoid of full and proper detail as to the state of the creditors. The trustee in his report identifies that as a minimum at the date of bankruptcy there were creditors in an amount of $34,031,760.69 in respect of which proofs of debt of $49,378,601.42 have been lodged. 8 Additionally that amount does not include a claim by the Deputy Commissioner of Taxation in respect of outstanding income tax and penalties nor claims by MBA Mortgages Pty Ltd or a claim by Kevin Charles Hart or a claim by Parkdale Management Pty Ltd. Since preparing the report, a proof of debt has been lodged by the Deputy Commissioner of Taxation in the sum of $47,519,281.10. 9 The trustee also tendered into evidence files of the applicants' previous solicitors, Primrose Couper Cronin Rudkin, relating to the dealings of the applicants with National Australia Bank and with a company, Davoren Nominees. A perusal of those files makes it abundantly clear that, for a long period of time, the Bank and Davoren Nominees had been pressing for payment, and in fact had gone to the Supreme Court in order to obtain orders against the applicants. The files show that the solicitors were advising the applicants throughout in relation to the matters and there was no attempt to pay out these substantial creditors. Davoren Nominees have claimed the amount of $499,124.72 and have lodged a proof of debt in that amount, and the National Australia Bank was at the relevant time a creditor of the applicants in an amount of $1,942,970.76 and after realisation of its security, remains a creditor in the amount of $1,509.531.59. No credible explanation has been given as to why the debt of the bank was not discharged. What the files show is that there was no credit available from that bank to the applicants and that the assets which they had secured to that bank were not available for the purpose of raising any further funds. 10 Importantly, the petitioning creditor was a company called Balkara Enterprises Pty Ltd. That company had made an advance to the applicants for a period of one year of a substantial amount of money. The applicants defaulted in respect of the payment of principal and interest when the same fell due upon maturity. Balkara Enterprises Pty Ltd were forced to issue a Court proceeding in order to recover the money due and ultimately obtained a judgment and caused a bankruptcy notice to issue in respect of that judgment and a petition to be filed. The amount claimed by Balkara Enterprises Pty Ltd is $168,678.04 and it has filed a proof of debt in that amount. 11 Irrespective of what the alleged assets of the applicants were worth - and that is a matter which has not been perused before me - the failure to deal with these pressing creditors in any way indicates to me that the applicants did not have the ability to raise the funds to discharge their debts as and when they fell due on 1 March 2002. In those circumstances they fail to make out the ground they rely upon in order to have the bankruptcy or sequestration orders annulled. That is sufficient to see the application dismissed. 12 It is unnecessary for me to express a concluded view as to whether or not, in the exercise of a discretion, I would in any event have refused to make an order for annulment even if I had been satisfied that the sequestration order should not have been made on 1 March 2002. It is sufficient for me to say that there was evidence of substantial grounds for refusing to exercise a discretion favourably to the applicants, having regard to their conduct and having regard to the lack of any basis being put forward whereby their remaining large creditors will be paid in full in respect of the debts which were claimed. 13 In the circumstances the application for annulment will be dismissed. I order that the applicants pay the respondent trustee his costs of and incidental to the application, including reserved costs, to be taxed if not agreed. I certify that the preceding thirteen (13) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Cooper. Associate: Dated: 21 December 2004 Counsel for the Applicants: The applicants did not appear Counsel for the Respondent: P McQuade Solicitor for the Respondent: James Conomos Lawyers Date of Hearing: 21 December 2004 Date of Judgment: 21 December 2004