Allco Principal Finance Nominees Pty Ltd v Palmer
[2008] FMCA 1456
•28 October 2008
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| ALLCO PRINCIPAL FINANCE NOMINEES PTY LTD v PALMER & ANOR | [2008] FMCA 1456 |
| BANKRUPTCY – Application for annulment of sequestration order under s.153B of the Bankruptcy Act 1966 (Cth) by the petitioning creditor – security held by petitioning creditor not disclosed on Creditor’s Petition – creditor did not wish to surrender security – Trustee neither consented to nor opposed the application – Bankrupt objected to annulment. |
| Administrative Appeals Tribunal Act 1975 (Cth) s.29 Bankruptcy Act 1966 (Cth) ss.44, 153B, 154, 303 Federal Court Rules Federal Court (Bankruptcy) Rules 2005 (Cth) Federal Magistrates Court Rules 2001 r.1.06 Federal Magistrates Court (Bankruptcy) Rules 2006 (Cth) rr.7.02, 7.03, 7.05 |
| Almassy, Re [1999] FCA 1004 Delph Sing v Wood (1918) 25 CLR 497 GIO Workers Compensation (NSW) Ltd v De Vita [2007] FMCA 1594 Heinrich v Commonwealth Bank of Australia [2003] FCA 539 Hy-Tech Industries Pty Ltd v Constable t/as Steve Constable Concrete Services [2006] FMCA 704 Rafaraci v Pearce & Heers [2003] FCA 1307 Re Estate of Valassis (deceased) v Bernard [2003] FCA 22 Stankiewicz v Plata [2000] FCA 1185 |
| Applicant: | ALLCO PRINCIPAL FINANCE NOMINEES PTY LTD |
| First respondent: | CHRISTOPHER JOHN PALMER |
| Second Respondent: | IAN WILLIAM NICHOLLS |
| File number: | SYG 2324 of 2008 |
| Judgment of: | Lloyd-Jones FM |
| Hearing date: | 14 October 2008 |
| Delivered at: | Sydney |
| Delivered on: | 28 October 2008 |
REPRESENTATION
| Counsel for the Applicant: | Mr Golledge |
| Solicitors for the Applicant: | Courtenay & Co Solicitors |
| Counsel for the First Respondent: | Mr Bavin |
| Solicitors for the First Respondent: | Hunt & Hunt Lawyers |
| Appearance for the second Respondent: | Mr Nicholls appeared on his own behalf |
ORDERS
The sequestration order made on 22 July 2008 against the estate of Mr Ian William Nicholls is annulled pursuant to s.153B(1) of the Bankruptcy Act 1966 (Cth).
The applicant, the petitioning creditor, of the proceedings pay the costs, charges and expenses of the administration of the bankruptcy as agreed and in the absence of agreement taxed in accordance with the Federal Court Rules.
The applicant must within 2 days give a copy of these orders to the trustee and to the Official Receiver pursuant to r.7.05 of the Federal Magistrates Court (Bankruptcy) Rules 2006.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SYG 2324 of 2008
| ALLCO PRINCIPAL FINANCE NOMINEES PTY LTD |
Applicant
And
| CHRISTOPHER JOHN PALMER |
First Respondent
| IAN WILLIAM NICHOLLS |
Second Respondent
REASONS FOR JUDGMENT
Introduction
This is an application brought by the petitioning creditor, Allco Principal Finance Nominees Pty Ltd, for the annulment of Ian William Nicholls’ bankruptcy under s.153B of the Bankruptcy Act 1966 (Cth) (“the Act”). Christopher John Palmer, who was appointed Trustee of the bankrupt estate of Mr Nicholls on 22 July 2008, indicated to the Court that subject to proper arrangements being made for his costs already incurred, he neither consented to nor opposed the creditor’s application. However, Mr Nicholls, the bankrupt, objected to the annulment application.
Background
The Bankruptcy Notice (NN4535/07) was served on Mr Nicholls on 19 November 2007 claiming an amount of $56,002.54 which was based on a judgment entered for the applicant creditor on 11 September 2007 in Local Court proceedings 3150/2007. Mr Nicholls failed to comply with the requirements of the Bankruptcy Notice on or before 10 December 2007, or to satisfy the Court that he had a counter claim, set off, or cross demand equal to or more than the sum claimed in the Notice. Allco Principal Finance Nominees Pty Ltd presented a Creditor’s Petition on 8 February 2008 relying on the above information.
Significantly paragraph 2 of Part I of the Petition states:
The applicant creditor does not hold security over the property of the [deceased] respondent debtor.
Mr Nicholls appeared before me at today’s hearing and argued his own case. The reference to the deceased respondent debtor appears to be an error. The other significant error in respect of this statement which is the basis of the current application for annulment now before the Court will be fully explained below.
All of the necessary formal requirements to make a sequestration order against Mr Nicholls were presented to the Court on 22 July 2008. Accordingly, Segal R made the following orders on that date:
1. A sequestration order be made against the estate of Ian William Nicholls.
2. The Applicant Creditor’s costs (including any reserved costs) be taxed and paid from the estate of the respondent debtor in accordance with the Bankruptcy Act 1966.
The Court notes that the date of the act of bankruptcy is 10 December 2007.
Those orders were entered on 22 July 2008.
Application for annulment of the sequestration order
On 5 September 2008 the following application was filed:
Application under Federal Magistrates Court (Bankruptcy) Rule 7.01 and section 153 of the Bankruptcy Act 1966 for annulment of bankruptcy of Ian William Nicholls upon basis secured creditor unintentionally failed to comply with section 44 of Bankruptcy Act 1966 when presenting petition.
The following evidence was filed and read in support of the application.
a)Affidavit in support of annulment application of David Paul Courtenay, solicitor, sworn on 5 September 2008.
b)Affidavit as to service and notification of David Paul Courtenay, solicitor, sworn on 24 September 2008.
c)Affidavit in support of annulment application of Helen Gilbert, Manager, Recoveries and Reporting – Collections, sworn on 9 September 2008.
Mr Bavin, appearing for the Trustee, Christopher John Palmer, filed in Court and read the following evidence:
a)Affidavit of Christopher John Palmer, accountant, sworn 14 October 2008.
Section 153B – Annulment by a Court
The application is brought pursuant to s.153B of the Act which relevantly provides:
Annulment by Court
(1) If the Court is satisfied that a sequestration order ought not to have been made or, in the case of a debtor's petition, that the petition ought not to have been presented or ought not to have been accepted by the Official Receiver, the Court may make an order annulling the bankruptcy.
(2) In the case of a debtor's petition, the order may be made whether or not the bankrupt was insolvent when the petition was presented.
Relevantly, in this matter the Court must be satisfied that the sequestration order ought not to have been made. If so, there then remains a judicial discretion as to whether the sequestration order ought to be annulled.
Mr Golledge drew the Court’s attention to s.303 of the Act which deals with who may bring applications generally to the Court:
Applications to Court
Where in respect of any matter this Act provides that:
(a) an application may be made to the Court; or
(b) the Court or the Registrar may exercise a power;
and does not specify the person by whom the application may be made or the person on whose application the power may be exercised, as the case may be, the application may be made by, or the power may be exercised on the application of, any person aggrieved by or interested in that matter.
Mr Golledge submits that the application presently before the Court is unusual because it has been made by the creditor and the Court needs to be satisfied that the creditor is either a person aggrieved by or interested in the matter. Mr Golledge referred the Court to a Federal Magistrates Court decision in which an annulment application had been brought by a creditor: Hy-Tech Industries Pty Ltd v Constable t/as Steve Constable Concrete Services [2006] FMCA 704 per Raphael FM. In this case, the underlying debt had been paid at the hearing of the Creditor’s Petition but the client’s solicitor had not been informed of this fact. A sequestration order was made by the Court. Subsequently, it came to light that the debt had been paid and the creditor made its own application for annulment. His Honour dealt with the annulment on discretionary grounds.
Mr Golledge submits that in light of Mr Courtenay’s affidavit, the creditor has two points of interest in this matter which gives it standing:
a)A party who has invoked the powers of this Court has an interest in having those powers properly exercised. Mr Courtenay’s affidavit reveals that there was a procedural error, if not a miscarriage of justice, which infects the previous proceedings and the applicant creditor seeks to correct the error which is a relevant interest within the terms of s.303.
b)The potential implication of what occurred and the theoretical possibility that the failure to identify the existence of the security and to estimate its value could have the result that the secured creditor could be found to have surrendered its security.
Mr Golledge submits that the surrendering of the security has not been raised in any proceedings by the trustee at the moment but it is possible. That possibility gives the creditor the relevant degree of interest to come back to the Court and correct the error that has been committed.
The nature of the error
Section 44(2) of the Act deals with the conditions under which a creditor may present a Petition against a debtor and seek a sequestration order. The fundamental requirement for standing to file and present a Creditor’s Petition is that there must be a debt or debts of not less than $2,000 owing to the creditor. Section 44(2)-(5) deals with the position of secured creditors:
(2) Subject to subsection (3), a secured creditor shall, for the purposes of paragraph (1)(a), be deemed to be a creditor only to the extent, if any, by which the amount of the debt owing to him or her exceeds the value of his or her security.
(3) A secured creditor may present, or join in presenting, a creditor's petition as if he or she were an unsecured creditor if he or she includes in the petition a statement that he or she is willing to surrender his or her security for the benefit of creditors generally in the event of a sequestration order being made against the debtor.
(4) Where a petitioning creditor is a secured creditor, he or she shall set out in the petition particulars of his or her security.
(5) Where a secured creditor has presented, or joined in presenting, a creditor's petition as if he or she were an unsecured creditor, he or she shall, upon request in writing by the trustee within 3 months after the making of a sequestration order, surrender his or her security to the trustee for the benefit of the creditors generally.
A secured creditor is unable to present a Creditor’s Petition unless it demonstrates (by inclusion of relevant information) in the Petition that it has an unsecured debt of more than $2,000. If the estimated value of security less the debt owed is more than $2,000, the petition can be issued. Consequently, a creditor holding security needs to disclose its existence in the Petition and estimate its value so as to satisfy the Court that it is a creditor that comes within s.44(1) of the Act.
The secured creditor can take an alternative course by offering to surrender the security for the benefit of creditors generally in the event of a sequestration order being made. If this course is adopted, the creditor becomes an unsecured creditor for the purposes of the proceedings. If a security exists it must be disclosed regardless of which option is selected.
By a series of oversights which I will elaborate on below, paragraph 2 of Part I of the Creditor’s Petition states that “the applicant creditor does not hold security over the property of the deceased respondent debtor”.
That statement was made in error. Both Ms Gilbert’s and Mr Courtenay’s affidavit of 5 September 2008 state that the error was inadvertentand that it was overlooked in the preparation of the Petition. Mr Courtenay’s affidavit states:
6. As of February 2008, the applicant held, as security, over the assets of Ian William Nicholls and his wife Lian Nee Nicholls, the benefit of a charge which had been granted by Ian William Nicholls and Lian Nee Nicholls to ORIX Australia Corporation Ltd (ACN 002 992 681) the terms of which are contained in schedule to the Business Line of Credit Contract No. 977. Annexed hereto and marked with letter “B” is a copy of that schedule.
7. As of February 2008 the existence of the security granted by ORIX was subject to Caveat AC663290 dated 10 October 2006. A copy of that caveat is annexed hereto and marked with the letter “C”.
8. The said caveat was in February 2008 lodged over three properties held by Lian Nee Nicholls and Ian William Nicholls. In each case, there had been registered in priority to the interests of the applicant, mortgage number AB603416 in favour of the National Australia Bank Ltd.
Mr Golledge submits that what ought to have been done in accordance with s.44 of the Act was one of two things:
a)The creditor ought to have disclosed the security which was an equitable charge over property owned by the debtor. The creditor would have had to estimate its value. Only if that estimation was in excess of $54,0000 would the debtor have been entitled to proceed with the Petition; or
b)There should be a statement disclosing the security and an agreement to surrender it.
This is a case where had the proper estimate been made, the creditor would have had no standing to present the petition.
In this matter if option (a) above was adopted and a proper estimate was made, the creditor would have no standing to present the Petition. Mr Courtenay’s affidavit in support of the annulment application states at paragraph 11:
At the time the creditor’s petition was being presented, the amount being sought in the petition was the amount of the Local Court debt of $56,002.54 and it was indicated to the Court that the amount being paid by the National Australia Bank into the Supreme Court as surplus from the proceeds of sale was to be an amount in the order of $200,000.
The affidavit of Mr Palmer sworn on 14 October 2008. In the the section “Notice to Creditors of Bankruptcy – Bankruptcy Regulation” under the heading “Financial Affairs” the following appears:
(a) Assets:
The only asset I am aware of is the 50% interest of the bankrupt in the sum of approximately $167,000, which represents the net proceeds from the sale of a property, described as 4/6 Carnarvon St, Carlton NSW 2218, owned jointly by the bankrupt and his wife. These monies were paid into the Supreme Court by the National Australia Bank Ltd (NAB) as the NAB was unsure as to who was entitled to the funds.
Clearly this is still substantially in excess of the debt owed to the petitioning creditor, Allco Principle Finance Nominees. Mr Golledge submits that a sequestration order was made in error as there was no intention to surrender the security.
Consequently, the petitioning creditor had no relevant standing for the sequestration order that was made. Had the true position been apparent (which is the test under s.153B of the Act), the Court would have been bound not to make an order because the petitioning creditor would not have been able to demonstrate the necessary conditions or standing required by s.44(1). It is noted that the Petition could have been amended at the time of the hearing but there was no application to do so. Any relevant amendment that did not involve surrender of the security would have revealed the creditor’s security over the property to which the charge attached. Mr Golledge submits that if those facts had been properly disclosed, the Court would have been bound not to make an order.
Mr Golledge submits that in hearing an annulment application, the Court is entitled to receive and act upon evidence on the facts about the making of the sequestration order. The Court is not limited to deal with the material before it when the order was made. He submits that on the basis of the evidence material, the Court was bound not to make a sequestration order in respect of the estate of Mr Nicholls.
Exercise of discretion
In the circumstances set out above, the question of the Court’s discretion arises. Mr Golledge argues that it is in the interests of justice that the sequestration order does not remain in force. Now that the error in that procedure is disclosed, the Court should correct the error and annul the bankruptcy.
a)That the error was entirely inadvertent and adverse consequences could potentially flow from the failure of the creditor to disclose the security in the Petition. As per s.44(5) of the Act there would be an injustice on the creditor in that the creditor remains continuously exposed to the prospect of being found to have surrendered the security.
Position of the Trustee
Mr Bavin, appearing for the Trustee, submits that the Trustee neither opposes nor consents to the annulment application. However, having been appointed pursuant to an order of this Court, the Trustee would support an application for his removal if the sequestration order were annulled.
Submissions from Mr Nicholls
Mr Nicholls submits that he opposes the annulment application on the following grounds:
a)If the bankruptcy is annulled there will still be an ongoing impact on him. Mr Nicholls stated that he made an application to the Administrative Appeals Tribunal (AAT) which were discontinued when the bankruptcy proceedings commenced. He stated that because the AAT application cannot be reactivated, the Australian Securities & Investments Commission decision which he was appealing against will stand.
b)Mr Golledge submits that if the annulment was granted and Mr Nicholls was insolvent he could present a Debtor’s Petition. Mr Nicholls indicated that he was an employed chartered accountant attempting to re-build his life and that he did not wish to be perceived professionally as attempting to escape his debts by presenting a Debtor’s Petition. He had adjusted to living as a bankrupt and if there was an annulment of that he would suffer further consequences.
Undertaking as to costs
Mr Golledge acknowledged that if the application failed the applicant would be required to pay Mr Palmer’s costs and he noted that Mr Nicholls was unrepresented. However, if the annulment is granted, Allco Principal Finance Nominees Pty Ltd agrees that the Court should make an order that the applicant pay the costs and expenses of the administration of the bankruptcy. If the bankruptcy was annulled s.154 of the Act would normally require that those costs be recovered from the former bankrupt estate.
Consideration
I acknowledge that this application brought under s.153B of the Act for annulment of a sequestration order is made in unusual circumstances, in that it is being brought by the petitioning creditor and requires the Court to be satisfied that the petitioning creditor is either a person aggrieved by or interested in the sequestration order. There have been a limited number of matters of this nature brought before the Courts which give rise to a question of the petitioning creditor’s standing to bring such an application. These circumstances arose in Hy-Tech Industries Pty Ltd v Constable t/as Steve Constable Concrete Services [2006] FMCA 704 per Raphael FM, which was a case where at the time of the hearing of the Creditor’s Petition, the underlying debt had in fact been paid and the client had not informed her solicitor who appeared at the hearing when the sequestration order was made.
In Almassy, Re [1999] FCA 1004, the applicant became bankrupt on her own petition. The ground of that application was that the applicant did not at the time realise fees and charges that might be charged against her estate. She stated that had she realised she would not have presented her Petition. In GIO Workers Compensation (NSW) Ltd v De Vita [2007] FMCA 1594, annulment was sought on the basis that the sequestration order ought not to have been made because the debtor was already bankrupt. In Re Estate of Valassis (deceased) v Bernard [2003] FCA 22 an application for annulment of the sequestration order was made on the basis that the debtor died prior to the hearing of the Creditor’s Petition and this fact was unknown to both the to Court and the debtor’s legal representative.
In the matter before this Court, the petitioning creditor brings to my attention a procedural error which it says infects previous proceedings. The petitioning creditor seeks to establish its standing on the basis that it has a relative interest within the terms of s.303 of the Act. This interest is invigorated by the possibility that the petitioning creditor, who is in fact a secured creditor, could be found to have surrendered its security and on that basis seeks to correct the error. There is no dispute that the petitioning creditor has failed to disclose the existence of the security or make a just estimate of its value. As it failed to adopt the alternative option of surrendering the security for the benefit of the creditors generally, s.44(1) of the Act has not been complied with.
Paragraph 16 of the affidavit of Mr Courtenay sworn on 5 September 2008 at paragraph 16 and paragraph 3 of the affidavit of Helen Gilbert sworn on 9 September 2008, both attest that the petitioning creditor had no intention of surrendering the security. This evidence was unchallenged. The Court is being invited to accept that this error was unintentional and overlooked during the preparation of the Petition. As the amount of the security was somewhere between $200,000 (affidavit of Mr Courtenay) and $167,000 (affidavit of Mr Palmer) and the debt was just over $56,000, Allco did not have the relevant standing to obtain the sequestration order and it should not have been made.
In the circumstances I am satisfied that Allco should be granted standing as an interested party seeking an annulment on the basis that the Creditor’s Petition presented on 8 February 2008, and the affidavit verifying that Petition sworn by David Lyons on 1 February 2008, resulted in an order by this Court that should not have been made. Because of their significant nature, both the Federal Court (Bankruptcy) Rules 2005 (Cth) and the Federal Magistrates Court (Bankruptcy) Rules 2006 (Cth) place a strict regime on applications of this nature.
The application filed on 5 September 2008 was initiated in this Court and so the relevant rules are the Federal Magistrates Court (Bankruptcy) Rules 2006 (“the Rules”). The application complies with r.2.01 of those Rules. The affidavit in support of the annulment application sworn by Mr Courtenay on 5 September 2008 complies with r.7.02 of the Rules in that it contains the relevant evidence upon which the application seeks to rely on at the hearing. The affidavit of service and notification sworn by Mr Courtenay on 24 September 2008 affirms that Mr Palmer, the Trustee in bankruptcy of Mr Nicholls, was served 28 days prior to the date fixed for hearing and satisfies requirements of r.7.02(2). Similarly, all the creditors that have been identified to the Trustee were notified not less than 14 days prior to the hearing and this satisfies r.7.03. The affidavit of Christopher John Palmer affirmed 14 October 2008 and filed during the hearing contain a report containing the relevant information that satisfies r.7.04. Nothing raised by the parties in submissions or in respect of the affidavits filed in these proceedings would suggest that I should consider dispensing with any non-compliance of r.1.06 the Federal Magistrates Court Rules 2001 (Cth) or as considered in Rafaraci v Pearce & Heers [2003] FCA 1307 per Tamberlin J.
My obligation is to first consider whether the sequestration order made on 22 July 2008 by Segal R should have been made and then whether in light of all the circumstances of the case, the sequestration order should be annulled: Heinrich v Commonwealth Bank of Australia [2003] FCA 539 at [7] per Mansfield J; Rafaraci v Pearce & Heers at [27] per Tamberlin J. In assessing that position I am not limited to the evidence disclosed at the time of the hearing of the Creditor’s Petition. I am entitled to consider the material on the basis that all the true facts were before the Registrar making the order. This includes considering the facts as they were at the date that the sequestration order was made on 22 July 2008 as well as how they are now known at the date of the hearing on 14 October 2008.
In this matter the security held over the assets of Ian William Nicholls and his wife, Lian Nee Nicholls, was charged to ORIX Australia Corporation Ltd which was a business line of credit schedule entered into on 23 November 2005. I am satisfied that the relevant principles to establish that the order “ought not to have been made” exist: Stankiewicz v Plata [2000] FCA 1185 per Sackville, Drummond and Dowsett JJ.
I find that the sequestration order made on 22 July 2008 ought not to have been made. I also have to determine whether I should exercise my discretion to grant relief by taking into account the whole of the circumstances: Delph Sing v Wood (1918) 25 CLR 497 at 499. Mr Nicholls, the bankrupt, indicated that he opposed the application on the grounds that an annulment would have had an ongoing and significant impact on him. As set out above this involves his appeal to the AAT which he had abandoned because he was presented with a Creditor’s Petition and his attempts to re-establish himself as an employed chartered accountant.
ASIC released a press statement on 18 August 2006 stating that it had banned Mr Nicholls from providing financial services for five years (affidavit opposing further adjournment sworn by David Paul Courtenay on 10 July 2008 filed in proceeding No SYG 286 of 2008). Mr Nicholls, a former financial advisor for Lonsdale Financial Group Ltd, was banned after an ASIC investigation into his involvement in financial dealings. It found that Mr Nicholls acted unconscionably when he arranged for a client to invest in a private company, XSIC (International) Pty Ltd, of which he was a director and in which he had a personal interest. ASIC found that Mr Nicholls misused his position of trust and confidence by taking unfair advantage of his clients and placing his own personal interests and those of XSIC (International) Pty Ltd before theirs.
The press release indicated that Mr Nicholls had a right to appeal to the AAT for a review of ASIC’s decision, which he has apparently availed himself of as indicated in his oral submissions. Mr Nicholls said that he withdrew from these proceedings because of the presentation of the Creditor’s Petition. However no details had been provided about what advice he received to withdraw and whether that was limited totally to the pending Creditor’s Petition.
The Court does not have in evidence any details of Mr Nicholls’ application to the AAT or the circumstances of the withdrawal of the proceedings. Section 29 of the Administrative Appeals Tribunal Act 1975 (Cth) contains provisions under which the Tribunal may extend the time for making an application:
(7) The Tribunal may, upon application in writing by a person, extend the time for the making by that person of an application to the Tribunal for a review of a decision (including a decision made before the commencement of this section) if the Tribunal is satisfied that it is reasonable in all the circumstances to do so.
(8) The time for making an application to the Tribunal for a review of a decision may be extended under subsection (7) although that time has expired.
(9) Before determining an application for an extension of time, the Tribunal may, if it thinks fit, require the applicant to give notice of the application to a specified person or persons, being a person or persons whom the Tribunal considers to be affected by the application.
(10) If a person to whom a notice is given under subsection (9), within the prescribed time after the notice is received by him or her, gives notice to the Tribunal, as prescribed, stating that he or she wishes to oppose the application, the Tribunal shall not determine the application except after a hearing at which the applicant and any person who so gave notice to the Tribunal are given a reasonable opportunity of presenting their respective cases.
On the limited information available, the circumstances would indicate that Mr Nicholls would be granted an extension of time by the AAT and a new application could be commenced.
In the absence of any detailed submissions by Mr Nicholls in respect of the AAT application, it is assumed that he had legitimate grounds for that application. The prejudice that flows from a ban imposed by ASIC and any application to have that ban lifted remains. The circumstances suggest support of an annulment because it puts Mr Nicholls back in the position of being able to lodge an AAT application whereas a sequestration order against him would deprive him of this right. The annulment would simply put him back in the position he was when he made his original application. Mr Nicholls did not clearly articulate why the annulment should not be granted because of the abandoned AAT application. Logically an annulment and the AAT finding in favour of him would allow him to resume his career. In the absence of further particulars I am unable to accept Mr Nicholls’ submissions that his abandonment of the AAT proceedings is a valid ground for refusal of the annulment.
Mr Nicholls responded to a submission made by Mr Golledge which stated that if Mr Nicholls was in fact insolvent he could present a debtor’s petition. Mr Nicholls in oral submissions indicated that being declared bankrupt was initially a shock and an embarrassment to him but he was adjusting his life to live as a bankrupt. He is employed as a Chartered Accountant and is attempting to re-build his life in these new circumstances. He did not wish to pursue the course of presenting a debtor’s petition for fear of the possible perception in professional circles that he was attempting to escape his debts by declaring himself bankrupt.
It is of major concern to the Court that Mr Nicholls is not further burdened in his attempts to rebuild his professional life that has been affected by the initial declaration of bankruptcy. I acknowledge Mr Nicholls’ statement to the Court about the ongoing impact of his bankruptcy. However, in Mr Nicholls’ role as a Chartered Accountant the status of his bankruptcy is not affected by whether it was initiated by a debtor’s or creditor’s petition. The significant issue relates to his status as a bankrupt as opposed to the method bringing about that status.
The issue is the question of solvency and the only avenue open to Mr Nicholls may be bankruptcy. The presentation of a debtor’s petition will allow him to return to solvency status if the current sequestration order is annulled. Apart from the brief submissions made by Mr Nicholls from the bar table, there is no evidence before the Court to demonstrate that his position would be affected by the way in which his bankruptcy is declared. Nor is there any evidence that there is any consequence that would flow from a debtor’s petition. It is acknowledged that consequences flow from being declared a bankrupt. However, in circumstances where the bankruptcy was annulled it remains open to Mr Nicholls to either choose to remain not a bankrupt, (there are no other petitions that have been presented against him) or return to the status of a bankrupt.
As a non-bankrupt he could elect to go to ITSA and file a debtor’s petition. That course remains open and there is no evidence that has been led by Mr Nicholls that would demonstrate that any undescribed consequence that would not be capable of being remedied by the filing of a debtor’s petition and Mr Nicholls re-entering and having the further benefit of bankruptcy which he is now seeking to maintain.
Significantly in an application of this nature the provisions of s.154 of the Act require that the annulment costs would be recovered from the former bankrupt estate. In effect Mr Nicholls would have to pay costs, charges and expenses of the administration of the bankruptcy. However, Mr Golledge, on behalf of his client, indicates that if the annulment was made the applicant in these proceedings agrees that the Court should make an order that the applicant pay the costs, charges and expenses of the administration of the bankruptcy thereby relieving Mr Nicholls of this obligation. In the circumstances I believe that this is an appropriate order and that no additional burden of costs should be met by Mr Nicholls.
In exercising my discretion I believe that the sequestration order made on 22 July 2008 should be annulled as the order ought not to have been made and should not be allowed to remain in force. It is not in the interests of justice to allow that order to remain. The only party raising objection to the annulment is Mr Nicholls and I acknowledge his concern but in the circumstances I am not satisfied that his ultimate interests are seriously affected by the annulment.
I certify that the preceding forty-five (45) paragraphs are a true copy of the reasons for judgment of Lloyd-Jones FM
Associate:
28 October 2008
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