Australian Credit Law Bulletin - Vol 7, No 9, December 2006
A free, plain English review of recent law and items of interest for creditors, produced by Hattaway & Associates Ltd, Credit Consultants. To subscribe send a blank email to: aus-bulletin-join@mailman.hattaways.com
Plain language disclaimer:
This bulletin is not legal advice. Do not make decisions on legal matters based on a brief commentary. Instead, get professional legal advice.
In this issue:
- Does an instalment order stop a statutory demand from proceeding?
Another stage in an on-going legal saga. - Solvent but bankruptcy not annulled
Judge not happy - refuses to exercise his discretion - Successful hardship application from borrower with crook knee
Some doubts about evidence but importance of car for her job was crucial - When you sue on a debt you've bought, need to prove the debt has been assigned
Except in this case!
1. Does an instalment order stop a statutory demand from proceeding?
Tatlers.com.au Pty Limited v Davis [2006] NSWSC 1055 (6 October 2006)
In May 2006, judgment was awarded in the Supreme Court for $75,000 jointly against Tatlers.com.au Pty Limited and an individual (unnamed in this judgment). The judgment was in favour of Mr Davis Davis. Briefly, the original case dealt with an acrimonious falling out of business associates in a bar/restaurant business. The original business was called Tatlers, and, one party subsequently set up a new business called Tatlers.com.au. For those who are interested, an early stage in the saga is online at http://www.austlii.edu.au/au/cases/nsw/supreme_ct/2006/102.html
Execution of the judgment was stayed for 28 days, meaning that Davis couldn't enforce it until that time was up. During that period, the judgment debtors applied for an instalment order and a registrar of the court approved monthly instalments of $10,000. An instalment order puts a further stay on enforcement action.
On 26 June 2006 Davis applied to the court to have the instalment order cancelled. On 30 June, the debtors made the first payment. However, they paid the money to the court when it should in fact have been paid to the creditor. The court returned their cheque. On 28 July 2006, the solicitors for the judgment debtors sent a cheque for $20,000 - the first two instalments - to Davis's solicitors, explaining the error. On 31 July, Davis's application came before the registrar who concluded that failure to pay the first instalment to Davis meant that the instalment order had ceased to have effect.
Davis issued a statutory demand against Tatlers.com.au which was served on or about 1 August 2006. A statutory demand is the first step in winding up a debtor company.
On 2 August, the debtors applied for a new instalment order and the order was made on 11 August. Davis objected on 24 August. Before the decision on this objection had been released, the parties went back to the Supreme Court to argue Tatlers.com.au's application to set aside the statutory demand. A statutory demand requires that the debtor company satisfy the debt. If it can't, it will generally be deemed to be insolvent. The creditor can then ask the court to put the company into liquidation.
Section 107 of the Civil Procedure Act 2005 says that "execution of a judgment for the payment of money is stayed while the judgment is the subject of an order..." That means that while there's an instalment order in place, the creditor can't use the garnishee process, for example, to seize money owed to the debtor company. However, a statutory demand isn't "execution of a judgment" so the stay doesn't stop the statutory demand process.
There are various reasons why a statutory demand may be set aside. In this case, the relevant reason in section 459J is that there is "some other reason why the demand should be set aside." The key question was whether the stay meant there was "some other reason". The judge felt it was inconsistent to have one law saying a judgment creditor couldn't proceed and another saying he could. He decided there was sufficient reason to set aside the statutory demand.
Back to top
Information on our current seminars
2. Solvent but bankruptcy not annulled
Foreman v Vince [2006] FMCA 128 (3 February 2006)
n June 1999, Shirley Foreman entered into a contract to buy a property in Brighton. She paid a part-deposit of $20,000, leaving $16,000 of deposit still to pay. She was unable to complete the purchase and the $20,000 was therefore forfeited. The remaining $16,000 of deposit remained due and outstanding.
In July 1999, she went bankrupt on her own petition, and a trustee, Vince, was appointed. (In other words, she, rather than her creditors, initiated the matter.) Her statement of affairs showed liabilities totalling $18,365 (all relating to the attempted property purchase) and assets totalling $394,995 of which about $390,000 was in superannuation. Her superannuation, she knew, was protected against her creditors. Aside from one creditor who was paid $150, her creditors received nothing from the estate.
In 2005, she applied to have the bankruptcy annulled on the grounds that she was solvent and the order making her bankrupt ought not to have been made. She went bankrupt, she claimed, in order to make her creditors justify their debts. She did not seek legal advice. Her current financial position, she said, was that she had assets, superannuation and bank accounts totalling $483,222.
The trustee neither opposed nor supported the application for annulment. He agreed that she was solvent at the time of the bankruptcy. The Trustee was of the view that Foreman's debts were legitimate and valid.
Generally, if a debtor can pay her debts, the bankruptcy should be overturned, whether the debtor likes it or not. However, the court has a discretion, which means it doesn't have to do this. An important issue is that "appropriate arrangements are made to pay the costs and expenses of the bankruptcy and to pay the debt due to the creditor." In this case, so much time had passed that the original debts were likely to be statute barred because they were out of time. The judge said, "in all the circumstances of this case I am not disposed to exercise my discretion to annul the Bankruptcy and I propose to dismiss the application with costs."
Back to top
Information on our current seminars
3. Successful hardship application from borrower with crook knee
Dickie v Esanda Finance Corporation Ltd (Credit) [2006] VCAT 2474
Esanda lent Ms Dickie $19,119.20 to buy a Nissan Pulsar. She agreed to repay the loan, plus interest of $8141.20, by sixty monthly repayments of $454.34 each. She fell behind (by 10 payments), and Esanda asked the Victorian Civil and Administrative Tribunal (VCAT) for permission to enter residential premises to repossess the car.
At the same time, Dickie asked VCAT to reduce the payments to $300 a month and extend the contract accordingly on the grounds of hardship. The Consumer Credit Code allowed her to apply for such a variation of contract where "illness, unemployment or other reasonable cause" made her fall behind. This is of course provided she "reasonably expects to be able to discharge [her] obligations" under the amended contract. She had first approached Esanda who had turned down her request.
Dickie was off work for much of 2006 due to an injury and subsequent knee replacement surgery. A financial counsellor prepared a budget which showed that she could afford $300 a month. A car was required for her to get to her job as a carer for a disabled person in rural Victoria.
The Tribunal member had two concerns about Dickie's evidence. One was that although a VicRoads certificate showed that a woman of the same name and address (Lynette Jean Dickie of 3 Timmins Street Ararat) had changed the name on her driver's licence from Lynette Jean Shields, Dickie maintained that she had never used the name Shields. It wasn't clear from the report why this issue was important, but it raised doubts about the truthfulness of her evidence. However, because she could not be confronted with the document during the hearing, the Tribunal stopped short of finding that her evidence was "untruthful".
The second issue was that she had granted a second security over the car to another lender. This was a breach of the agreement with Esanda. She said she thought that she was granting a security interest only over various whitegoods. However, the Tribunal member found this didn't impact on her credibility.
He concluded that she met the criteria for variation of the contract on hardship grounds. The default was due to her injury and surgery. She now expected to be able to pay if the payments were reduced to $300 per month. The budget was prepared with assistance from a financial counsellor, and the expectation was therefore reasonable. This also suggested that she was "exhibiting a great degree of financial responsibility than she may have exhibited in the past." Another important factor in the Tribunal member's eyes was the fact that she would lose her job if she lost her car and would be unlikely to get other work.
The payments were therefore reduced and the term of the loan extended. However, the Tribunal member noted that this "would not affect Esanda's right to enforce its security on the grounds of that other breach and so the making of the order sought by Ms Dickie might turn out to be futile."
Back to top
Information on our current seminars
4. When you sue on a debt you've bought, need to prove the debt has been assigned
Quiroga v Credit Corp Services Pty Ltd [2006] VSC 305 (17 August 2006)
In 1999, Westpac Banking Corporation issued a credit card to Mr Quiroga. In 2004, Wespac assigned a debt relating to this card to Credit Corp. In 2005, Credit Corp sued Quiroga for the money, over $10,000. Quiroga denied owing the money for a number of reasons. Among other things, he denied that the assignment was valid.
Credit Corp's witness, Ms Cass, produced a number of documents. One of these was a Debt Sale Agreement between Westpac and Credit Corp. This document didn't mention Quiroga but referred to "appendix A" which presumably had a list of debts. However, appendix A wasn't produced. Instead, Ms Cass offered a computer printout (which wasn't part of the agreement) of debts sold including the amount owed by Quiroga at the time of the assignment. There was no evidence of where appendix A was, why it wasn't produced, or whether Quiroga's name was on it.
Despite this, the magistrate in the Magistrate's Court accepted that Westpac had sold the debt relating to Quiroga to Credit Corp. Quiroga appealed.
On appeal, the issue was whether the magistrate could be satisfied on the basis of all of the evidence that Credit Corp was the purchaser and assignee of the debt owed by Quiroga to Westpac. The judge in the Supreme Court found that it was open to the magistrate to come to that conclusion, so Quiroga's appeal failed.
However, it's clear that the original decision of the magistrate could easily have gone against Credit Corp. The judge made a point of stressing that this was a one-off decision on its facts. Generally, a creditor, having bought a debt in this type of situation must produce the documents, or copies of the documents which give it the right to sue.
