Application By Official Receiver, Re Roughley - [2012] FMCA 324

FEDERAL MAGISTRATES COURT OF AUSTRALIA

APPLICATION BY OFFICIAL RECEIVER, RE. ROUGHLEY

[2012] FMCA 324

BANKRUPTCY – Annulment of bankruptcy – bankrupt’s estate already under administration under previous sequestration order – second sequestration order should not have been made – defective search of National Personal Insolvency Index – annulment order made – no orders as to costs, including trustees’ costs, expenses and remuneration.

Bankruptcy Act 1966 (Cth), ss.153B, 153B(1), 154
Federal Magistrates Court (Bankruptcy) Rules 2006 (Cth), r.4.06(3)

Clyne v Deputy Commissioner of Taxation (1984) 154 CLR 589

Applicant:

OFFICIAL RECEIVER

File Number:

SYG 595 of 2012

Judgment of:

Smith FM

Hearing date:

16 April 2012

Delivered at:

Sydney

Delivered on:

16 April 2012

REPRESENTATION

Counsel for the Applicant:

Mr A Ronayne

Ronayne Lawyers (city agent)

Solicitors for the Applicant:

Galilee Solicitors

ORDERS

Service of notice of the application for annulment on the debtor and his creditors is dispensed with.
The sequestration order made on 14 November 2011 against the estate of Peter G Roughley also known as Peter George Roughley, in proceedings (P)SYG2235/2011 is annulled pursuant to s.153B(1) of the Bankruptcy Act 1966 (Cth).
No orders as to costs in relation to the application or in relation to the costs, charges and expenses of any administration arising under that sequestration order.
The debtor, Peter George Roughley, has liberty to apply for further orders in relation to orders 2 and 3.
The applicant must serve a copy of this order on the trustee and former trustees of the debtor, and on the debtor within 5 working days.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA
AT SYDNEY

SYG 595 of 2012

OFFICIAL RECEIVER

Applicant

REASONS FOR JUDGMENT

(revised from transcript)

This is an application filed on 16 March 2012 by the Official Receiver with no named respondents, in which the Official Receiver seeks the following orders:
1.That the bankruptcy of Peter G Roughley also known as Peter George Roughley arising pursuant to administration number NSW 7140/11/3 (“the Second Bankruptcy”) be annulled in accordance with section 153B of the Bankruptcy Act 1966.
2.That the Trustees of the Second Bankruptcy be entitled to recover costs incurred in respect of the administration of the Second Bankruptcy from the bankruptcy of Peter George Roughley arising pursuant to administration number NSW 3980/11/3 (“the First Bankruptcy”) in accordance with the Bankruptcy Act 1966.
3.That the obligations of the Trustees of the Second Bankruptcy in respect of the administration of the Second Bankruptcy under the Bankruptcy Act 1966 be dispensed with.
4.Such other or further orders as the Court deems fit.
Although brought ex parte in the name of the Official Receiver, the application has been conducted by the former solicitors for the creditor upon whose petition the sequestration order was obtained on 14 November 2011, that is, Citigroup Pty Ltd (“Citigroup”).
Their petition was filed on 4 October 2011, and was given a return date on 14 November 2011. It relied on a judgment debt of $28,807.34 and extra interest arising from a Local Court judgment entered on 24 May 2011. The petition identified the debtor as “Peter G Roughley also known as Peter George Roughley”. On 14 November 2011, there was no appearance for the debtor, and the Registrar made the sequestration order. Presumably, the Registrar was satisfied as to service, the act of bankruptcy, and other matters required by the legislation. These matters are unclear to me, since the relevant file is not before me today.
The Registrar was given an affidavit purporting to show a search of the National Personal Insolvency Index of the debtor’s two known names, for the purpose of Federal Magistrates Court (Bankruptcy) Rules 2006 (Cth), r.4.06(3). A copy is now before me. It deposed to and attached a printout of a search of the National Personal Insolvency Index. The attachment appears to indicate that the ITSA computer had been searched in the names of Peter G Roughley and Peter George Roughley with the response in relation to date of birth: “No data held”, and with other responses showing identification only of the pending Citigroup petition.
It is now accepted that the solicitor conducting the NPII search did not discover that, in fact, Mr Roughley had been made bankrupt under his same full name, Peter George Roughley, on a petition by the Deputy Commissioner of Taxation, which had been heard and decided by the making of a sequestration order on 24 June 2011.
The evidence before me is somewhat obscure as to how that oversight happened. I am left unclear whether it was due to a failure by Citigroup’s solicitor or one of his employees to conduct a proper search using the online software, or as a result of a defect in the software itself in relation to searching the ITSA databases. There is a suggestion in an affidavit recently sworn on 15 March 2012 by the solicitor that:
17.I have made further enquiries in relation to the searches conducted on the Index, and have subsequently found that the earlier bankruptcy was not located by my search because a “wild card” was not used in respect of the search on the first name of the Respondent.
Not being proficient myself in searching the ITSA computer base, I have not been able to understand this paragraph, nor to make any finding as to the real reasons for the lack of awareness of the existing bankruptcy by the Registrar when she made the sequestration order on 14 November 2011.
What is clear, it appears to me, is that the sequestration order should not have been made, since on that date Citigroup’s rights against Mr Roughley had been converted from a right to recover a debt, into a right to submit a proof of debt in Mr Roughley’s current bankruptcy (see Clyne v Deputy Commissioner of Taxation (1984) 154 CLR 589 at 595).
I am therefore satisfied that the precondition to annulment under s.153B(1) is established. Whether I should exercise my discretion to annul also needs consideration. However, there appears to be an obvious need to terminate one of the concurrent bankruptcy administrations, and on the evidence before me I am unable to discern any reason why it would not be appropriate to exercise my discretion today, so as to allow Mr Roughley’s insolvency to be administered in relation to the first sequestration order, being the earliest in time.
I note that the Official Trustee was appointed as trustee after the first sequestration order was made, and that Messrs Weston and Porter also purported to assume that office pursuant to their consent which had been lodged in relation to the second sequestration order. I note that Mr Weston has now agreed to take over the administration previously performed by the Official Trustee, and that this transfer has been effected under the provisions of the Act, without the need for any Court order.
The present application has no named respondents, and is brought in the name of the Official Receiver. There is evidence that Citigroup was given notice of it, and I also note that their former solicitor has assumed carriage of the matter and given evidence. There is also evidence that Messrs Porter and Weston are aware of the application, and desire the making of all of the above orders, although they have not appeared to present arguments in support.
There is no evidence of any service on the bankrupt debtor, Mr Roughley, nor on any of his other creditors, including the Deputy Commissioner of Taxation. There is no evidence before me as to the state of his bankrupt estate, the contents of his statement of affairs, and whether or not there are other creditors. However, it is difficult to see that Mr Roughley or other creditors could object to the annulment of the second sequestration order, apart from issues of costs and expenses.
In relation to any costs and expenses arising from the second petition and the second sequestration order, the Act itself normally addresses these upon an annulment under s.153B, pursuant to the provisions of s.154. It expects that outstanding costs and expenses of the terminated bankruptcy administration will be met by the former bankrupt, since the trustee has a continuing charge over the property that previously vested in him in relation to his own expenses and remuneration, and any deficit remains owing to him by the former bankrupt. However, without being referred to any authorities on the point, it appears to me that s.154 is not designed to meet the situation of an annulment of an ineffective bankruptcy arising in the present circumstances. In the present circumstances, I would not regard Mr Roughley as being a “former bankrupt” for the purposes of s.154, if I annul the second bankruptcy without affecting Mr Roughley’s status arising from the sequestration order made on 24 June 2011. The vesting of Mr Roughley’s property under the first sequestration order would be unaffected if I annul the ineffective second bankruptcy.
Mr Roughley might be personally affected by my setting aside the second sequestration order by way of an annulment order under s.153B, only if an attempt is made to make him personally liable for costs or expenses arising from that order. This is a matter upon which Mr Roughley would have a right to be heard, and I would not make any orders today which would have that effect, without him being properly joined and served with the annulment application. However, if I do not make such an order, I consider that it would be sufficient to dispense with service on him and his creditors, and to give him liberty to apply in the event that somebody starts wishing to pursue him for costs or expenses.
The present ex parte nature of the proceedings therefore provides me with good reason for declining to make any order as to the payment of the applicant’s costs, or of the costs of the sequestration order and administration which should not have occurred. Moreover, I am not persuaded that it would be appropriate for me to make an order which would make any part of these costs payable from the estate which is being administered under the first sequestration order. As I have indicated above, the fault in relation to the second order being made appears to either be that of the solicitors for Citigroup who conducted an imperfect search, or, perhaps, the persons responsible for faulty software for searching the National Personal Insolvency Index. I am unable to resolve this to my full satisfaction, but I am confident that it is not appropriate to make a costs order which would encumber Mr Roughley’s estate in bankruptcy with those costs and expenses, since this will unjustifiably disadvantage the creditors in that estate, or Mr Roughley personally in the event that there is a surplus. I therefore decline to make the second order sought in the application.
I shall make no orders as to costs of the present proceedings, or of any other proceedings relating to Citigroup’s petition, but give liberty to Mr Roughley to apply in the event that further orders are needed to protect his interests in relation to both matters.
No submissions were made to me to explain the sources of my power to make the third order which is sought, nor as to why I should exercise it. It appears to me that the effect of the annulment order will necessarily absolve Messrs Weston and Porter from any continuing duties to continue a bankruptcy administration which should not have commenced. I therefore decline to make the third order.

I certify that the preceding seventeen (17) paragraphs are a true copy of the reasons for judgment of Smith FM

Date: 26 April 2012