ALLARD v Investrend Debt Solutions Pty Ltd
[2010] FMCA 807
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| ALLARD v INVESTREND DEBT SOLUTIONS PTY LTD | [2010] FMCA 807 |
| BANKRUPTCY – Review of registrar’s decision – trustee sought orders for annulment in preference to review – presence of supporting creditor militated in favour of allowing review rather than annulment. |
| Bankruptcy Act 1966 (Cth) Federal Magistrates Act Federal Magistrates Court (Bankruptcy) Rules 2006 Federal Magistrates Court Rules 2001 |
| Ivanhoe Grammar School v Raschilla [2003] FMCA 30 Kyriackou v Shield Mercantile Pty Ltd(No.2) [2004] FCA 1338 Pattison v Hadjimouratis [2006] FCAFC 153 Thi Tuyet Nga Barber v Bone Thorpe International Pty Ltd [2001] FMCA 4 |
| Applicant: | STEPHEN ALLARD |
| Respondent: | INVESTREND DEBT SOLUTIONS PTY LTD |
| File Number: | BRG 452 of 2010 |
| Judgment of: | Burnett FM |
| Hearing date: | 15 September 2010 |
| Date of Last Submission: | 15 September 2010 |
| Delivered at: | Brisbane |
| Delivered on: | 15 September 2010 |
REPRESENTATION
| Solicitors for the Applicant: | The applicant appeared on his own behalf |
| Solicitors for the Respondent: | Tucker & Cowen Solicitors |
ORDERS
That the application be allowed and that the Order of 2 June 2010 be set aside.
ORDERS by consent:
The supporting creditor be substituted for the initiating creditor.
The creditor’s application be adjourned for hearing to 9.30am on 20 October 2010.
The debtor file any material relevant to section 52(2) considerations, being material in support of there being other sufficient cause as to why the creditor’s petition should not be set aside, by 4pm on 6 October 2010.
The debtor pay the trustee’s costs and outlays, including legal costs associated with this application, incidental to the administration of his estate under the original sequestration order including the initiating creditor’s costs of, and incidental to, its creditor’s application be paid by the debtor. Such costs are to be assessed and to have priority.
FURTHER ORDERS:
That the Applicant pay the Trustees’, Morgan Lane and Rajendra Khatri’s, remuneration and expenses, including legal costs associated with this application, incidental to the administration of his estate under the original sequestration order, and further, that all of the Applicant’s assets be charged with the payment of such remuneration and expenses of the Trustees.
That the applicant pay the Respondent’s costs and disbursements of and incidental to this matter. Such costs are to be assessed in short form as permitted by the Rules and are to have priority.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT BRISBANE |
BRG 452 of 2010
| STEPHEN ALLARD |
Applicant
And
| INVESTREND DEBT SOLUTIONS PTY LTD |
Respondent
REASONS FOR JUDGMENT
(Revised from Transcript)
On 2 June 2010 Registrar Baldwin made a sequestration order against the estate of the applicant Stephen Allard. In all respects the application was a regular application properly determined on the material placed before the Registrar and the Registrar’s orders were in all the circumstances appropriate. There is no suggestion of the Registrar’s Order being in error and no criticism can be visited upon her in respect of the orders made.
On 7 July 2010 the applicant made application pursuant to section 104(2) of the Federal Magistrates Act for review of the Registrar’s decision. In his affidavit in support of the application the applicant claimed to have paid an amount of $3,550.00 which was a sum in excess of the judgment debt supporting the bankruptcy notice, that is a judgment in the sum of $2,779.11. It is unnecessary to descend into any detail concerning the dispute between the applicant debtor and the creditor, except to note that the dispute was one cloaked in intrigue and had it been brought to the attention of the court prior to the making of the sequestration order it was of a kind that would have satisfied the Registrar that pursuant to section 52(2) of the Bankruptcy Act that there was other sufficient cause why a sequestration order ought not to have been made.
Following the making of the sequestration order the trustees appointed pursuant to the order commenced to perform their functions in accordance with their statutory obligations. They proceeded reasonably and without undue zealousness. From my observation they have been particularly restrained in their conduct since receiving notice of the application for review.
This application was opposed by the creditor particularly because the debtor had not filed any application to set aside the judgment upon which the bankruptcy notice was based; had not sought any application to set aside the bankruptcy notice; did not appear on the creditor’s petition; and no other defect could be demonstrated on the Registrar’s decision which was contended would entitle the applicant debtor to succeed in having the orders set aside. In addition it was contended that the applicant debtor had not provided any evidence in respect of solvency and that in all the circumstances it was just and equitable that a sequestration order be made.[1]
[1] See notice stating grounds of opposition to application, interim application or petition filed 8 July 2010.
The trustees for the debtor adopted a more realistic approach recognising that there was indeed a serious issue underlying the judgment. Subject to one matter which I will address below the trustees initial position was that if the court was of the view that the sequestration order was properly made but is now otherwise satisfied by the further material filed by the debtor that sequestration order ought not to have been made then the principal relief that ought to be granted could be in two forms, that is:
a)The sequestration order be set aside and there be consequential orders; or
b)The trustees be granted leave to make oral applications for dispensation with compliance of the court rules and then for an application for annulment of the bankruptcy of the debtor under section 153B of the Act.
Mr Cowen in his very helpful and comprehensive submissions made on behalf of the trustees proposed three courses of action. Understandably from his client’s perspective an issue arose in respect of his client’s costs and disbursements in the context of this application. To that end the debate focussed upon the questions of whether or not the sequestration order ought be set aside or whether or not the sequestration order not be set aside but the court proceed to annul the bankruptcy under section 153B of the Act.
His principal contention was that the sequestration order was properly made there being no suggestion of it having been made in error. He contended that the debtor’s material was insufficient to convince the court that it should exercise its discretion to set aside the sequestration order given the considerations relevant to the exercise of the discretion included the bankrupt’s solvency, evidence of unsecured creditors, the bankrupt’s conduct during the course of the bankruptcy (including whether or not the bankrupt has delivered his statement of affairs) and whether or not the bankrupt has made any proposal for payment of fees and charges incurred by the trustee in the course of the administration; Thi Tuyet Nga Barber v Bone Thorpe International Pty Ltd [2001] FMCA 4. None of those matters were addressed in the debtor’s material. In addition he contended that the evidence demonstrates that the debtor had failed or refused to comply with the trustee’s request in particular with the trustee’s requirement that the debtor file his statement of affairs as required under the Act and provide the trustees with information relating to his income, his creditors, his other liabilities, his assets or other evidence generally of his solvency. I note that in the context of the application the debtor has not filed in the court any evidence addressing matters of general solvency.
In his submissions he contended that if the court was of the view that the sequestration order now ought no longer remain in effect then the best course would be for the court to order an annulment under section 153B of the Act. He submitted the trustees were persons capable of pursuing such an application for annulment and have a right to be heard in respect of a review application seeking orders that a sequestration order be set aside: Ivanhoe Grammar School v Raschilla [2003] FMCA 30. He contended the court could dispense with the requirement for filing an application that is to be heard orally in stanta; see Rules 2.04, 7.01 to 7.05 of the Federal Magistrates Court (Bankruptcy) Rules 2006. This would ensure by the combination of Rule 1.03 of the Federal Magistrates Court (Bankruptcy) Rules 2006 and Rule 1.06 of the Federal Magistrates Court Rules 2001. In addition he contended that it would be in the interests of the administration of justice and of administering the Act that the court should avoid the unnecessary expense of the trustees being required to comply with the relevant rules applying to annulment applications; see Ivanhoe Grammar School v Raschilla supra at [45].
The options contended for by Mr Cowen are clearly open to the court: see Pattison v Hadjimouratis [2006] FCAFC 153. Ultimately the question for the court is whether making an annulment order is preferable course in all of the circumstances. In determining that question balance must be struck between the rights of the debtor and the rights of the trustee who has simply carried out his statutory duties; Kyriackou v Shield Mercantile Pty Ltd(No.2) [2004] FCA 1338 324 per Weinberg J.
The significance of protecting the trustee’s position was identified by McInnes FM in Ivanhoe Grammar School v Raschilla (supra) where at 40 his Honour noted:
“The trustee in the present case on the material before me has acted with due diligence in accordance with his obligations and duties under the Bankruptcy Act. He has clearly incurred, on the affidavit evidence before the court, expenses of the kind which at least prima facie may be considered reasonable in the administration of the estate. It is therefore appropriate that the court give consideration to making orders which will otherwise provide that the trustee who has incurred the costs and expenses should be given the opportunity to be reimbursed.”
The trustee advanced four grounds for the option of refusing the review application but favourably entertaining the annulment application. They were:
a)The debtor’s conduct. In particular his failure to defend the initial proceedings including those upon which the judgment supporting the bankruptcy notice and creditor’s petition were based; his failure to engage in the creditor’s application; and, his delay in filing his review application;
b)No criticism can be made of the trustees with its work being that required by law and only that which was reasonably necessary for the administration of the estate;
c)The trustee’s conduct following they being put on notice from 24 June of the review application. That is to say, rather than continuing with a more usual active approach in the administration of the bankrupt’s estate the trustees exercised their professional judgment with respect to the amount of work which was required to be carried out and generally adopted a go slow approach to the administration of the estate being cautious to carry out only the bare minimum amount of work in order to comply with their statutory duties. So much appears to be consistent with the measure of costs charges and expenses including the trustee’s professional fees evident in the material;
d)The professional fees and outlays incurred by the trustees would have been considerably less if the debtor had complied with his obligations set out in the Act including completing and returning a statement of affairs and general refusal to respond to the trustee’s attempts to obtain information from him and his general refusal to cooperate with the trustees.
Those factors militate in favour of the Trustee’s submissions for annulment in preference to an order setting aside the sequestration. In this instance however matters are complicated by the presence of a supporting creditor. The debtor is indebted to the supporting creditor but at this time the supporting creditor has not sought the issue of a bankruptcy notice in respect of the debt due to it. The sum due to the supporting creditor is a sum in excess of $23,000. That is a sum significantly larger than the judgment debt relied upon by the initiating creditor. There is evidence that other creditors are also evident in the background. To proceed to dismiss the review application and entertain the annulment application would in my view prejudice both the debtor and other creditors. The debtor would be denied his ability to challenge arguable indebtedness and supporting creditors would be denied the right to leverage any subsequent creditor’s application upon the application brought by the initiating creditor. I am mindful that setting aside the Registrar’s order constitutes something of an indulgence to the debtor given his conduct to date. However I am also mindful that the debtor is largely self represented because of his claimed financial incapacity and inability to afford legal representation and that the dispute between he and the creditor relates to collection fees for the debtor’s trade debts together with related representations made in respect of the manner in which debts would be collected and such fees would be payable from successful collections. From his appearances I formed the impression that the debtor is a small trade subcontractor who until recent times has not had adequate insight into the significance of these proceedings.
In addition, following debate between the parties, it was generally agreed that the court’s powers pursuant to section 30(1)(b) to make such orders as the court considers necessary for the purposes of carrying out or giving effect to the Act would enliven the court’s jurisdiction to make orders affording some priority to the trustee’s fees in the event that any subsequent sequestration order be made.
This application proceeded on the premise that all parties consented to orders that the trustee have priority in respect of his fees costs and disbursements in the administration of the debtor’s estate and that this concession addresses the difficulty which has been identified in Patterson v Hadjimouratis (supra) and in particular the majority’s view that in the event the court were to order that the sequestration order be set aside the trustee would be left to seek recovery of his costs charges and expenses of the administration at general law.[2]
[2] Per Nicholson J at [19]; Jacobsen J at [70] citing with approval the decision of Kyriackou v Shield Mercantile Pty Ltd (No.2) (supra) per Weinberg J.
It follows having regard to those matters I am of the view that it is appropriate to make an order setting aside the Registrar’s sequestration order of 2 June 2010. It was agreed by the parties that were I to make an order allowing the application and setting aside the sequestration order consequential procedural orders ought be made. It follows that the following orders be made:
a)That the application be allowed and that the order of 2 June 2010 be set aside.
And by consent:
b)The supporting creditor be substituted for the initiating creditor.
c)The creditor’s application be adjourned for hearing to 9.30am on 20 October 2010.
d)The debtor file any material relevant to section 52(2) considerations, being material in support of there being other sufficient cause as to why the creditor’s petition should not be set aside, by 4pm on 6 October 2010.
e)The debtor pay the trustee’s costs and outlays, including legal costs associated with this application, incidental to the administration of his estate under the original sequestration order including the initiating creditor’s costs of, and incidental to, its creditor’s application be paid by the debtor. Such costs are to be assessed and to have priority.
And further order:
f)That the Applicant pay the Trustees’, Morgan Lane and Rajendra Khatri’s, remuneration and expenses, including legal costs associated with this application, incidental to the administration of his estate under the original sequestration order, and further, that all of the Applicant’s assets be charged with the payment of such remuneration and expenses of the Trustees.
g)That the applicant pay the Respondent’s costs and disbursements of and incidental to this matter. Such costs are to be assessed in short form as permitted by the Rules and are to have priority.
I certify that the preceding fifteen (15) paragraphs are a true copy of the reasons for judgment of Burnett FM
Date: 21 October 2010
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