Houlahan & Ors v Nicholls [2016] FCCA 2354 (7 September 2016)

Last Updated: 5 October 2016

FEDERAL CIRCUIT COURT OF AUSTRALIA

HOULAHAN & ORS v NICHOLLS

[2016] FCCA 2354

Catchwords: BANKRUPTCY – Whether the Respondent has satisfied the court that he can pay his debts – whether the respondent is recalcitrant but solvent – whether the respondent had assets available to satisfy the debt by ordinary remedies – sequestration order made.

Legislation: Bankruptcy Act 1966 (Cth), s.52

Cases cited: ANZ Banking Group v Foyster [2000] FCA 400

First Applicant:

MARK ANTHONY HOULAHAN

Second Applicant:

FRANCES THERESE HOULAHAN

Third Applicant:

PAULINE ELIZABETH D’ASTOLI

Supporting Creditor:

LARA NANCY NICHOLLS

Respondent:

SAXON HERSCHEL NICHOLLS

File Number:

MLG 1270 of 2016

Judgment of:

Judge McNab

Hearing date:

7 September 2016

Date of Last Submission:

7 September 2016

Delivered at:

Melbourne

Delivered on:

7 September 2016

REPRESENTATION

Counsel for the Applicants:

Mr Kewley

Solicitors for the Applicant:

BSA Legal

Counsel for Supporting Creditor:

Ms Vadarlis

Solicitor for the Supporting Creditor:

Vadarlis & Associates

The Respondent appearing in person

ORDERS
Pursuant to Section 52(1) of the Bankruptcy Act 1996,

(1) A Sequestration Order be made against the estate of Saxon Herschel Nicholls.
(2) The applicant creditors costs including the supporting creditor’s costs be taxed and paid from the estate of the respondent’s debtor in accordance with the Bankruptcy Act 1966.

AND THE COURT NOTES THAT:

(3) The date of the act of bankruptcy is 13 June 2016.

FEDERAL CIRCUIT COURT OF AUSTRALIA AT MELBOURNE

MLG 1270 of 2016

MARK ANTHONY HOULAHAN

First Applicant

FRANCES THERESE HOULAHAN

Second Applicant

PAULINE ELIZABETH HOULAHAN

Third Applicant

LARA NANCY NICHOLLS

Supporting Creditor

And

SAXON HERSCHEL NICHOLLS

Respondent

REASONS FOR JUDGMENT DELIVERED EX TEMPORE

1. I am satisfied of the matters under s.52(1) of the Bankruptcy Act 1966 (Cth)(“the Act”). I am satisfied of service of the petition and I am satisfied of the fact that the debt, or the debts in which the petitioning creditor relies, is still owing.
2. In respect of s.52(2) of the Act, Mr Nicholls, appearing on his own behalf, has sought to satisfy me that he is able to pay his debts and that the petition be dismissed. In support of his application, he has filed affidavits, in particular an affidavit of 29 August 2016, in which he asserts that he is solvent. He asserts that he himself has immediate available cash and liquidity of $42 million to meet his obligations. That is made by way of assertion without evidence.
3. The affidavit is replete with assertions of a similar kind without any supporting evidence to back up a claim that he himself is able to pay his debts as and when they fall due. In respect of the debt that is the subject of the creditor’s petition, his position is that he is well and truly able to pay that debt, but is simply unwilling to do so because he regards the claim as an outrageous one and he is not here to be bullied.
4. He asserts that he could pay his debts at any time and, in particular, this debt at any time, but he chooses not to do so.
5. I was referred by counsel for the applicants to a decision of Hely J in the Federal Court of ANZ Banking Group v Foyster [2000] FCA 400, in particular to the statement of principles set out at [16] and [19] as follows:
   • 16. The Bank has made out the elements which prima facie entitle it to the making of a sequestration order. However, s 52(2) of the Act provides that if the Court is satisfied that the debtor is able to pay his debts, or that for other sufficient cause a sequestration order ought not to be made, then the Court may dismiss the petition.
   • 17. The onus of proving sufficiency of assets lies on the respondent. It is not sufficient for the respondent simply to establish that he has assets which exceed his liabilities in value. It must also be established that the assets are available to be realised and that they are capable of ready realisation. If a debtor is able to pay his or her debts, but is recalcitrant, the creditors may resort to other remedies, such as execution against property and garnishee proceedings, but not to sequestration. Bankruptcy is not a proceeding designed for the recovery of debts: see Re Sarina; Ex Parte Wollondilly Shire Council [1980] FCA 138; (1980) 32 ALR 596, 599.
   • 18. Although a sequestration order will not be made against the estate of a debtor who is recalcitrant but plainly solvent, the Bank submitted, on the basis of Trojan v Corporation of Hindmarsh [1987] FCA 276; (1987) 16 FCR 37, 46-48, that the discretion under s 52(2)(a) should not be exercised unless the debtor demonstrates that the petitioning creditor will be satisfied from the ordinary remedies such as execution and guarantee. Trojan decides that even if a debtor establishes solvency, the Court retains a discretion whether or not to dismiss the petition. The Full Court said, at p 48:
     • "... the principle laid down in the Sarina case would not necessarily be satisfied by a sterile demonstration of an ability to achieve a payment which was not in reality at all likely to be compelled. Section 52(2)(a) envisages a situation which will probably bear fruit in payment. It is not easy to see any other reason why the legislature saw fit to make a demonstration of ability to pay only a discretionary ground of dismissal of a petition, and not an absolute bar to its success."
   • 19. Under s 52(2)(a) the respondent must satisfy the Court that he is "able to pay his ... debts", including liabilities: s 5(1). In my view, the subsection refers to a state of affairs which requires account to be taken of debts which will fall due in the reasonably immediate future pursuant to existing obligations: Bank of Australasia v Hall [1907] HCA 78; (1907) 4 CLR 1514, 1527-1528 as well as debts which are presently due and payable. However, whether that is so or not, for the reasons explained by Katz J in International Alpaca Management Pty Ltd account needs to be taken, if not in assessing solvency, then in the exercise of the discretion whether or not to dismiss the petition, of liabilities which will become payable in the reasonably immediate future.
6. In relation to the position that a sequestration order will not ordinarily be made against the estate of a debtor who is recalcitrant, but plainly solvent, it was put and then established by principle in that case that the debtor has to have available assets which will be satisfied by ordinary remedies such as execution and guarantee. Mr Nicholls has not offered any such assets and it would appear, having regard to the matters that he has placed in his affidavit, that execution in the ordinary course would not satisfy the debt.
7. Counsel for the applicant referred the Court to an unsuccessful application made by the respondent in the Supreme Court of Victoria in the subject debt by instalments.^[1] In that application, Mr Nicholls makes comment that he is currently subject to a number of extant orders made by the Family Court of Australia; indicatively, 70 orders have been made by the Family Court, approximately 50 subpoenas have been issued. He says he currently has outstanding spousal maintenance obligations and child support of $250,000 for each of his three children from his first marriage. He also says he needs to pay $250,000 to Christina Parks, the mother of his fourth daughter, in respect of child support.
8. It would appear that these matters are outstanding, notwithstanding orders being made by the Family Court of Australia. He makes critical comments of the judges of the Family Court who were dealing with his matter.
9. Further, he states in his application that:
   1. he has the ability to borrow on a conditional basis from various third parties; and
   2. this form of funding has been proven to be remarkably robust over time and should satisfy the Court; and
   100. such amounts fluctuate, but safely could be considered as between $10,000 and $40,000 per month.
10. He says in his application that:
    • I am currently solvent, but I also have liabilities that significantly exceed my assets, in this case by approximately $10.5 million. I do not fear insolvency as I can bring parties before the Family Court should they wish to pursue me and I have already done so, successfully defeating two creditors petitions in the last year.
11. Further, at page 6 of his application, the respondent states:
    • This judgment creditor (the applicant) is relatively minor in the scheme of things. My total liabilities are currently approximately $10.5 million. I have contingent liabilities, on my best estimate, of $22 to $25 million as I have provided the ex-wife with a taxation indemnity. This indemnity was given by way of a court order.
12. He also refers to his notion of economic rationality where he states that:
    • A number of economically rational parties, such as the ANZ Banking Group and KPMG, have declined to pursue their claims against me. The ANZ had a claim of $1.5 million and KPMG of $45,000.
13. I take it that by those words in his application to the Supreme Court, he is saying that even a large corporation is unlikely to recover a debt and that only an irrational party would seek to recover their debts in the ordinary course against him.
14. He threatens in the application there will be a lot more litigation and that a judgment creditor will receive nil and refers to Family Court proceedings.
15. In my view, the respondent has manifestly failed to demonstrate solvency as would engage the Court’s discretion pursuant to s.52(2) of the Act.

I certify that the preceding fifteen (15) paragraphs are a true copy of the reasons for judgment of Judge McNab

Date: 4 October 2016

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^[1] Exhibit BBS-1 an Affidavit of Bruce Burdon Smith sworn 28 July 2016