A victory for common sense

Justice Robert McDougall of the NSW Supreme Court deserves applause for his common-sense approach to the problem of the insolvency expert who struck liquidity problems and was almost made bankrupt.

The case is a microcosm of what has been happening in the broader corporate world where companies with assets in excess of liabilities are unable to solve cash-flow problems by getting finance from their banks.

Some of those companies are going under instead of being given a chance to extend repayment terms. People are losing their jobs and the community is suffering for a short-term financial gain.

Banks contemplating putting companies under ought to heed Judge McDougall's wise words in rejecting an application from a private equity firm to force the partner of a major accounting firm to pay a $1.6 million debt immediately.

Richard Albarran, a partner at chartered accountants Hall Chadwick and a registered liquidator, owed $1.6 million to Hellier Capital Pty Ltd.

Albarran has gross assets of about $5 million, which is mainly in a strata title property in Sydney's Pyrmont. He has liabilities of about $4.5 million including debt on the properties, tax obligations and partnership loans.

Albarran's $536,000 surplus of assets over liabilities could only be realised if he sold the property at full appraisal value and that is not at all likely in the current market.

Adding to his liquidity woes, Albarrran has contingent liabilities including an unresolved property settlement with his former wife, obligations to a former partner at Hall Chadwick and obligations to a current partner who is retiring.

His applications to banks for finance to pay the $1.6 million judgment against him were unsuccessful.

But Albarran offered to pay by instalments based on his ability to earn income as a registered insolvency practitioner. Evidence was presented that his monthly earnings in the previous three and a half years from the partnership had averaged $77,000. On a cash basis his earnings peaked at $96,000 a month in 2005 and hit a low of $52,000 a month in the 2007 financial year.

The NSW Supreme Court Registrar had accepted his application to pay the debt by instalments but Hellier Capital appealed to have that rescinded.

Albarran, who was advised by Etienne Lawyers, argued that he had no training or experience to enable him to practise in any other area of accounting. Judge McDougall said this was significant because if he became bankrupt he could not act as a registered insolvency practitioner.

The judge said that there was some basis for concluding that there was a vindictive nature to Hellier's interest in wanting to bankrupt Albarran.

He quoted a comment by Hellier's solicitor to Albarran's lawyers on April 17 which said: "My client has instructed me to file a creditor's petition in due course thereby achieving what it regards as at least a moral victory.”

Judge McDougall said there was a legitimate public interest in having trained people, who performed important work, remaining available to perform that work.

"It would be a loss to the community if Mr Albarran's services as insolvency practitioner were not available to the community, particularly - although this is not a consideration of great significance - during what is often called the global financial crisis,” the judge said.

He said there was an equally significant public interest in Albarran being able to support the child from his previous marriage, the children of his present partner and the child he has had with this present partner who are all dependent upon him for support. They would all suffer if he was made bankrupt, the judge said.

Common sense prevailed and the judge ordered that the instalment order originally made by the Registrar not be rescinded.

Albarran must pay the debt in monthly instalments over four years starting at $23,000 a month for the first four months and increased thereafter. The debt earns interest at 9 per cent per annum.