Case: Re Sarina; Ex parte Council of the Shire of Wollondilly (1980) 43 FLR 163; 48 FLR 372
Outcome: referred to
Under s 52(2)(a) of the Act the Court may dismiss a creditor's petition if it is satisfied by the debtor that he or she is able to pay his or her debts. The onus of establishing that fact is on the debtor. The debtor must establish that he or she is able to pay his or her debts within a reasonable time. If a debtor establishes his or her ability to pay his or her debts then a sequestration order should not be made even if the debtor is unwilling to pay the debt which forms the basis of the petition: Re Sarina; Ex parte Council of the Shire of Wollondilly (1980) 43 FLR 163 per Deane J; (1980) 48 FLR 372 per Bowen CJ CA, Sweeney and Lockhart JJ. It is also true, as the appellant submitted, that a debtor with few or no assets and a modest income may have no difficulty in establishing an ability to pay his or her debts. At the same time a mere assertion of solvency or ability to pay debts may not be sufficient. A Court will assess the whole of the evidence and the fact that a debtor has not produced certain evidence relevant to his or her financial situation may be relevant to the question of whether the debtor has satisfied the onus of establishing the fact that the debtor can pay his or her debts. 61 In this case, the appellant's counsel conceded before the Federal Magistrate that he was not contending that the appellant could satisfy the Court that she was able to pay her debts. The relevant passage in the transcript of the submissions is in the following terms: 'His Honour: Have you filed an affidavit giving us any idea what your client's financial circumstances are? Mr Sallis: No your Honour. His Honour: No, all right. Mr Sallis: Therefore, I can't argue with you about solvency. His Honour: No.' 62 That concession was made in the context of previous statements by the Registrar and the Federal Magistrate to the effect that the evidence of the appellant's financial circumstances was very limited. In my opinion, the concession made before the Federal Magistrate is an answer to the argument the appellant now seeks to put on the appeal. The Federal Magistrate would have been entitled to rely on the concession and simply to have noted that the submission that the appellant fell within s 52(2)(a) was not pressed. It was not a matter where the onus was on the petitioning creditor or one where the Court was under an obligation to investigate the matter; the onus was squarely on the appellant and it was open to her to abandon the point. 63 The appellant submitted that she is able to press the insolvency point on appeal because the Federal Magistrate did not rely on the concession. The focus of the Federal Magistrate's reasons is s 52(2)(b) of the Act and whether 'other sufficient cause' why a sequestration order ought not to be made had been established. He did say in the course of his reasons that although the appellant had asserted that she was able to pay her debts as and when they fell due, she had provided no evidence about her assets or liabilities. He referred to his observations in his reasons for judgment delivered on 21 April 2006 which are set out in [28] above. 64 It would not be proper to read the Federal Magistrate's reasons for judgment as if he had put the concession to one side. The concession was a concession that further evidence was required and yet had not been put forward and that, in those circumstances, the contention that the matter in s 52(2)(a) had been established could not succeed. 65 On appeal, the appellant's counsel submitted that no concession had been made or, alternatively, if it had it is irrelevant because the Magistrate did not rely on it. For the reasons I have given, I reject both of those submissions. It was not suggested that the concession was made by mistake or accident and that the appellant should be permitted to withdraw the concession on appeal for one or other of those reasons. 66 Even if I am wrong and the Federal Magistrate did not rely on a concession, in my opinion, a conclusion that the appellant had not established that she was able to pay her debts was a conclusion that was reasonably open to the Magistrate. The appellant's evidence consisted of, first, no more than assertion that she was solvent and able to pay her debts and, secondly, details relating to the claims of the respondent, CFS and Bernsteen. The evidence put forward by the appellant established the following: 1. As at 6 April 2006 the appellant was working in a business and receiving an income of about $1,200 per week. 2. The debt which she owed to CFS had been paid although there was no evidence as to the source of the moneys used to repay the debt. 3. Bernsteen has a claim against the appellant for the sum of $29,068.55 and the appellant has a counterclaim against Bernsteen which she quantifies at a figure in excess of $50,000. There was no evidence as to the strength of either the claim or counterclaim and neither has come on for trial. 4. Bernsteen has obtained orders for costs against the appellant. The making of those orders is the subject of an application for special leave to appeal to the High Court of Australia. However, the orders have given rise to existing liabilities subject to any orders staying the enforcement of the liabilities. The liability of the appellant to Bernsteen for the costs awarded by the Magistrates Court of South Australia is for the sum of $12,000. The enforcement of that judgment has been stayed by order of a State Magistrate. The liability of the appellant to Bernsteen for the costs awarded by the Supreme Court of South Australia is for the sum of $11,191.80. The enforcement of that judgment has not been stayed. 5. Bernsteen has a liability to the appellant for the costs of the appellant's successful application to set aside the bankruptcy notice and that liability has been quantified or is likely to be quantified in the sum of $6,221.78. 6. The appellant has a liability (not yet quantified) for costs to the respondent upon the discontinuance of an application for a stay of the judgment debt and the appellant may have an offsetting claim for costs against the respondent for an unsuccessful attempt by the respondent to have the appellant's State Magistrates Court proceedings struck out as an abuse of process. 67 These matters are no doubt relevant to the appellant's financial circumstances and go some way towards establishing that the appellant is able to pay her debts. However, the onus is not on the petitioning creditor; it is on the judgment debtor. Furthermore, the appellant's assertions of solvency cannot be given any great weight particularly in light of the approach she took before the Magistrate (see [61] above). 68 The appellant must have some ongoing expenses and, presumably she would say, some means of meeting some or all of those expenses. It was the absence of any evidence relevant to those matters which led the Magistrate to conclude that the appellant had not discharged the onus of establishing that she is able to pay her debts (see [28] and [42] above). That conclusion was open to him.