Alaeddin v CGU Workers Compensation (NSW) Ltd

[2007] FMCA 1833

FEDERAL MAGISTRATES COURT OF AUSTRALIA

ALAEDDIN v CGU WORKERS COMPENSATION (NSW) LTD [2007] FMCA 1833

BANKRUPTCY – Review of Registrar’s decision – application to set aside sequestration order under s.153B Bankruptcy Act 1966 – where doubt as to amount owed by bankrupt at date of petition – whether sequestration order ought to have been made – whether sequestration order should be set aside.

Bankruptcy Act 1966, ss.33, 153B, 154

Hawthorne v Carter (Trustee), in the matter of Hawthorne (Bankrupt) [2006] FCA 1097
Pattison v Hadjimouratis [2006] FCAFC 153
Kyriackou v Shield Mercantile Pty Ltd(No. 2) (2004) 138 FCR 324
Vaucluse Hospital Pty Ltd v Phillips & Anor [2006] FMCA 44

Applicant: MOHAMED ALAEDDIN

Respondent: CGU WORKERS COMPENSATION (NSW) LTD ACN 003 181 002

File Number: SYG 1950 of 2007

Judgment of: Raphael FM

Hearing dates: 9 & 23 October 2007

Date of Last Submission: 23 October 2007

Delivered at: Sydney

Delivered on: 5 November 2007

REPRESENTATION

Counsel for the Applicant: Mr S. Golledge

Solicitors for the Applicant: Ledlin Partners

Counsel for the Respondent: Mr J.T. Johnson

Solicitors for the Respondent: PH Legal

Solicitors for the Trustee McCabe Temill Lawyers

ORDERS

1. The bankruptcy of Mohamed Alaeddin be annulled pursuant to s.153B Bankruptcy Act 1966.

2. Applicant to pay costs of the trustee’s solicitors in relation to these proceedings.

3. Respondent to pay any costs of the applicant and the trustee thrown away by the adjournment of the matter on 9 October 2007.

4. Otherwise each party to pay its own costs in relation to the proceedings and the hearing on 23 October 2007.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
SYDNEY

SYG1950 of 2007

MOHAMED ALAEDDIN

Applicant

And

CGU WORKERS COMPENSATION (NSW) LTD

Respondent

REASONS FOR JUDGMENT

Introduction

1. On 28 March 2007 a sequestration order was made by Registrar Kavallaris against Mohamed Alaeddin. The petitioning creditor verified the debt stated in the creditor’s petition to be $12,084.86. The debtor was not present in court.

2. On 25 June 2007 the bankrupt filed an application with this court seeking a review of the Registrar’s decision or, in the alternative, the annulment of the sequestration order pursuant to s.153B of the Bankruptcy Act 1966 (“the Act”). The bankrupt also asked for an extension of time to review the order of the Registrar pursuant to s.33 of the Act. The matter was set down for hearing on 31 July 2007 when the parties went before the Registrar and interlocutory orders relating to the filing of evidence were made. The matter was relisted for 28 August 2007 when it was adjourned to 18 September 2007. On 18 September 2007 it was adjourned to 9 October 2007, on which day it was transferred into my court and the hearing commenced. The hearing was adjourned, part-heard, until 23 October 2007 when it was concluded.

3. The debt upon which the petition was based was one obtained out of the Local Court of New South Wales on 16 September 2005 in the sum of $11,188.27, being the amount of certain outstanding premiums for workers compensation insurance which the bankrupt was required to obtain as a self-employed taxi driver. The bankrupt took no steps to set aside that judgment, nor did he think to discuss with the creditor the amount he thought might be outstanding. He appears to have done nothing after service upon him of the bankruptcy notice, but when the petition was issued he sought legal advice. The evidence which he gave indicated that he was not entirely happy with the advice he received, or the manner in which it was given, and so he sought to take matters into his own hands. On 22 January 2007 he had a meeting with a Mr Jonathan Gasperson, a Credit Services Team Leader with the creditor.

4. It is undisputed that the bankrupt had concerns about the premiums which he had been asked to pay for workers compensation insurance for the years 2002-03, 2003-04, 2004-05. It is also undisputed that if the bankrupt could establish that he had not employed drivers during those years (or employed drivers for less time than originally forecast) he would be statutorily entitled to a refund on the premium paid. The refund could not be calculated or paid until the insurance company had evidence about the employment of drivers, which was constituted by a log from the taxi co-operative with which the bankrupt worked. Log details were provided for the year 2004-05, and a credit was given. There is a factual dispute between the parties as to whether logs were provided for the other two years and whether, at the meeting with Mr Gasperson, the insurer agreed to withhold action on the petition whilst the rebate was being calculated and whilst the bankrupt paid the sum of $250.00 per week. Mr Gasperson says there was no such agreement. He produced some computer-generated contemporaneous notes of dealings between his company and the bankrupt [Exhibit 1] which do not make any reference to that arrangement although they do make reference to a phone call in which the bankrupt is alleged to have said on 16 February 2007 that he would pay the 2004-05 premium of $1,009.00 at the NRMA on 19 February 2007 and would pay $200.00 each two weeks until paid.

5. There is no indication that that offer was in consideration of anything happening with the petition but the bankrupt states that when he went to the NRMA to try and pay the money he was not allowed to do so because there appeared on his account a credit. He did, however, make five payments of $250.00 (Annexure D to affidavit of Mr Alaeddin of 18 September 2007). The figure of $1,009.00 was a figure contained on an adjustment notice found as Annexure MA2 to the affidavit of Mr Alaeddin of 21 June 2007. On 28 March 2007 Mr Alaeddin received two documents [MA4] and [MA5] from CGU. One indicated that he owed $1,160.81 and the other that he owed $2,361.38. 28 March 2007 was the date that the petition was heard and the date upon which the amount contained in the petition was verified. [MA5] shows adjustments for cash receipts of $1,000.00 and the $1,019.70 credit for the 2004-05 policy in addition to several late payment fees. It is not an easy document to comprehend. In an affidavit of 27 August 2007 Alicia Thomas, the Credit Services Manager of CGU, says that as at the date of swearing the affidavit Mr Alaeddin is recorded as being indebted to the respondent in the sum of $10,843.11 in respect of the judgment entered for workers compensation premium and late payment fees for policy periods 7 June 2002 to 7 June 2005 together with an additional sum of $1,545.11 for the policy period 7 June 2005 to 7 June 2006 making a total of $12,388.22. The affidavit is inaccurate in that it does not give Mr Alaeddin credit for the $1,250.00 payments that he made nor, would it appear, for the $1,019.70 premium refund. There is no suggestion of any deliberate attempt to deceive the court in relation to this matter. There would appear to have been problems with the computer system operated by CGU which prevented these credits from being shown.

6. Mr Alaeddin asserts that if the logs were taken into account and the premiums properly adjusted, including adjustments to late payment fees if the premiums quoted were not in fact due, the balance owing by him to CGU may well be under $2,000.00. He argues that in those circumstances the petition should have been dismissed. In the alternative, he submits, there was clearly some doubt about exactly how much was owed as at the date the petition was heard because of the various statements with different figures in them that I have previously referred to. In Hawthorne v Carter (Trustee), in the matter of Hawthorne (Bankrupt) [2006] FCA 1097 the creditors had not fully disclosed to the court at the time of the hearing of the petition that certain funds had been paid although the payment by the debtors had been returned. His Honour said at [8]:

   “I think that had the Federal Magistrates Court known of these circumstances, it would have caused further inquiries to be made and would have adjourned the application for the sequestration orders, rather than making them as it did on 29 May 2006.  In my view, the circumstances fall within those contemplated by Gibbs J in Re Williams (1968) 13 FLC 10 at 23.  I also refer to the observations of Gummow J in Re Ditfort; Ex parte Deputy Commissioner of Taxation (1988) 19 FCR 347 at 350”

7. I am unable to be satisfied from the evidence of the applicant either that he took in the logs for the 2002-03 or the 2003-04 years or that he came to a further arrangement with Mr Gasperson that if he made payments at $250.00 per week the petition would not proceed. Exhibit 1 provides no corroboration of his evidence. Because it seems a rather full set of file notes, I would have expected such an arrangement to have been recorded if it was made. I note that the other proposal about paying $1,009.00 and $200.00 each week is recorded, although even then, the consideration is not expressed to be the withdrawing of the petition. We know that probably through no fault of his own Mr Alaeddin was unable to pay the $1,009.00 and that he paid more than the $200.00 per week. He may have thought that this was enough to keep the petition at bay, but he never had that confirmed by CGU.

8. On the other hand I am satisfied that there is a real doubt as to exactly how much money Mr Alaeddin owes. Because he did not produce the so-called “logs”, I am not prepared to make a finding that he is entitled to any refunds on the earlier policies as of today, although he may be entitled to such if he can bring those documents in and they do indicate that he did not employ drivers. I accept Mr Golledge’s submission on Mr Alaeddin’s behalf that the refunds are not discretionary matters; they are statutory obligations on the insurance company.

9. At the time of the sequestration order, Mr Alaeddin’s financial position as found by his trustee in the helpful report provided to the court was that he did not appear to have any other debts, owned his own home subject to a mortgage, and had a motor vehicle worth approximately $11,000.00. He later sold that motor vehicle and wrongfully did not advise his trustee. If one takes into account the credits that were undoubtedly due against the amount verified in the petition the debt to the only unsecured creditor could have been paid. While Mr Alaeddin has not been very forthcoming about his current financial situation and in particular his earnings, I am satisfied that as at the date of the petition he could have paid his debts as and when they fell due from moneys reasonably speedily available to him. He did owe money under his mortgage, but the evidence from the trustee would seem to indicate that this has not been a problem for his bankers and therefore it would only be the monthly repayments that should be taken into account when assessing solvency, and these seem to have been made.

10. Given this finding, and given the concerns which I have expressed about the actual amount owed to CGU, and noting the views of Mansfield J in Hawthorne, I am of the view, consistent with s.153B(1) of the Act, that a sequestration order ought not have been made. That is the requirement for an annulment, but given the bankrupt’s solvency he may well have been entitled to a favourable review of the decision of the Registrar. The substantive question posed for me to decide is whether in all the circumstances I should provide the review and set aside the sequestration order, and dismiss the petition or grant the annulment. In order to come to such a decision I shall take account of current authority, the conduct of the bankrupt and the effect of a review and dismissal upon the trustee whose fees have been sworn to in two affidavits provided to me.

11. The bankrupt’s conduct is most certainly open to criticism. He took no steps in relation to the Local Court proceedings when it would have been very easy for him to produce the documentation that would relieve him of much of the debt. He never sought to set aside that judgment or offer to pay by instalments. He took no steps after service upon him of the bankruptcy notice. He had legal advice at various stages of the matter and, having been made bankrupt, he took no steps for several months and in the meantime sold a car and did not pay the proceeds of sale to his trustee. No criticism has been made of the trustee. He has not acted precipitously, nor has he expended large sums of money in the administration of the estate. He has, rightly, been represented at the hearing and has provided the court with a report as required by the rules.

12. It is now clear that the Federal Magistrates Court can consider both an application for review and an application for an annulment under s.153B: Pattison v Hadjimouratis [2006] FCAFC 153 at [60] per Jacobson J. His Honour also opined that on a review and setting aside of a sequestration order, an order under s.154 of the Act protecting the trustee’s costs could not be made. His Honour agreed with the views expressed by Weinberg J in Kyriackou v Shield Mercantile Pty Ltd(No. 2) (2004) 138 FCR 324 where there is a responsibility on a trustee to exercise caution in administering an estate where that trustee has knowledge that the banrkupt is challenging the validity of the order. A balance must be struck between the rights of the debtor and the rights of the trustee who has simply carried out his statutory obligations. In Vaucluse Hospital Pty Ltd v Phillips & Anor [2006] FMCA 44 Riethmuller FM reviewed all the authorities which bore upon the question of whether to annul or to review. His Honour noted at [65] that using s.153B solely to overcome a lack of power to order that a party pay a trustee’s remuneration and expenses (or part thereof) in a review is an approach that requires considerable care. His Honour noted at [68] that there was potential for injustice as a result of the lack of indiscretion brought about by utilising the annulment power, which was not designed to be a power to make orders about fees and expenses of trustees in reviews. At [66] his Honour summarised what he believed to be the current position:

    “The purpose of Div 5 of Part VII (and s.37) was not to provide a method for making orders for the remuneration and expenses of trustees. The provisions do not allow for the exercise of any discretion of the type usually exercised with respect to costs: see for example Re Skase; ex parte Donnelly (1992) 37 FCR 509. The provisions of the Act with respect to the fees of trustees are presently outdated. In cases involving reviews there will rarely have been a creditor’s meeting to approve fee rates. Whilst r.8.08 refers to 85% of the IPAA Guide to Hourly Rates, that guide has not been updated for many years (according to the IPAA website < The IPAA now also issue covering notes to the guidelines stating:

    When calculating the appropriate fee, there should be a careful review of the quality and quantity of work performed ensuring that the staff mix and rate is commensurate with the nature and complexity of work done, taking into account the stress, specialist skills and urgency required to meet deadlines.”

13. I would respectfully follow the guide suggested by FM Riethmuller, noting first that the sequestration order in this case was made on 28 March 2007 and the application for review was not filed until 25 June 2007, well over two months out of time. I note that the trustee has taken certain steps to administer the estate but that these are no more than the steps that a trustee would normally take upon being advised of his appointment. The total fees incurred up to the time the report to the court was prepared was $8,893.18. The trustee filed a further affidavit on 22 October 2007, indicating that additional fees in the sum of $6,377.76 had been incurred and future costs to finalise the estate if the bankruptcy were annulled would be $1,089.00 (all amounts GST-inclusive). I am satisfied that in the circumstances of this case those fees are not excessive and are entirely consistent with the trustee acting responsibly in the knowledge, some three months after the sequestration order had been entered, that it was the subject of an application for review. I have already expressed the view that the sequestration order should not have been made. The conduct of the bankrupt has not been exemplary. If he had taken up his concerns about the policy charges at the time proceedings were first commenced against him, a large amount of legal time would not have had to be spent. He was also wrong to have disposed of his motor vehicle without handing over the proceeds of sale to the trustee. These factors tell against the making of an order setting aside the sequestration order and dismissing the petition. Finally, the debt which led to the sequestration order was a business debt. The debtor was a one-man business. The obtaining of workers compensation insurance is a statutory obligation. It is in the public interest that the insurers as agents of the State collect premiums. The type of debt also militates against acting on the review.

14. Whilst I am prepared to relieve Mr Alaeddin of the burdens of bankruptcy I believe it should be done under the provisions of s.153B. I believe that Mr Alaeddin should pay the costs of the trustee’s solicitors in relation to these proceedings. In regard to the other costs of the proceedings, I made an order that the petitioning creditor pay any costs that were thrown away by the adjournment of the matter on 9 October 2007. I think that order should remain, but otherwise I believe that the fair order to make, taking into account the conduct of Mr Alaeddin in relation to his obligations to CGU and the clearly confusing manner in which the debt was dealt with by CGU, is that it would be appropriate for each party to pay its own costs.

I certify that the preceding fourteen (14) paragraphs are a true copy of the reasons for judgment of Raphael FM

Associate: 

Date:  5 November 2007