BANKRUPTCY – application for de novo review – where Registrar has exercised delegated power and made order for sequestration of debtor’s estate – where parties engaged in protracted litigation including with respect to existence of debt, appeal from judgment of Local Court, appeal to Court of Appeal – application to set aside service of bankruptcy notice – where debtor exhibits bankruptcy notice, the service of which is in issue – where debtor pursues proceedings in the Federal Court of Australia and High Court of Australia – where application for review remitted to be heard as soon as is reasonably possible – where parties seek succession of adjournments – where Court directs submissions in advance of hearing – where debtor intended to oppose creditor’s petition – where only issue advanced by debtor’s written outline challenges service of bankruptcy notice and petition – challenge as to service withdrawn – where no notice given challenging jurisdiction – where no notice given challenging failure to comply with Federal Circuit Court (Bankruptcy) Rules 2016 – failure to comply with rule 2.06 – grounds of opposition not set out in prescribed Form or supported by affidavit – where debtor foreshadowed evidence of solvency may be adduced – no affidavit as to solvency or any other matter filed – where petitioning creditor taken by surprise during cross-examination that jurisdiction in issue – where petitioning creditor taken by surprise during closing address that debtor’s ‘principal’ and third ground for opposing petition was want of compliance with Bankruptcy Rules – whether rules complied with – consequences of non-compliance – where debtor renews application for adjournment – adjournment not opposed – applicable principles – matters required by s 52(1) satisfied – whether debtor has satisfied the court that for other sufficient cause petition should be dismissed – application stood over for further submissions as to s 306
PRACTICE & PROCEDURE – creditor’s petition – parties obligations to comply with Federal Circuit Court (Bankruptcy) Rules 2016 (Cth) – presentation of petition – conditions upon presentation – function of rules to facilitate hearing – obligations to serve and file affidavits with petition and before hearing – obligations of persons intending to oppose the grant of relief – requirement to file and serve notice of appearance, notice in prescribed form stating grounds of opposition and affidavit in support of those grounds – nature of review – debtor’s true grounds of opposition not revealed before cross-examination and closing address – whether obligation to file notice of grounds of opposition to petition applies on de novo hearing – role of verifying affidavit in light of issues raised by notice of grounds of opposition – parties ordinarily to be allowed some opportunity to adduce further evidence – duty of Court to consider compliance with Bankruptcy Act and Bankruptcy Rules by petitioner and persons seeking to…
Grounds of appeal
[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.
[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.
[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.
Consideration
[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.
[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.
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AGLC
Bates v Bechara (No 2) [2021] FCCA 1809
Case
[2021] FCCA 1809
Decision Date
CaseChat Overview and Summary
This matter concerned a creditor's petition brought by Mr Bates against Ms Bechara. The dispute revolved around the procedural requirements for opposing a creditor's petition, particularly in the context of a de novo hearing. The case was heard by Justice Kelly in the Federal Court of Australia.
The central legal issue before the court was whether a person intending to oppose a creditor's petition at a de novo hearing was relieved of the obligation to file a notice of appearance, a notice of grounds of opposition, and an supporting affidavit. Ms Bechara had submitted that such a requirement would constitute a serious error.
Justice Kelly rejected Ms Bechara's submission, finding that the statutory framework, including the Bankruptcy Rules and FCC Rules, imposed obligations on a debtor intending to oppose a creditor's petition. The court reasoned that these rules were not irrelevant or otiose even in a de novo hearing, as they ensured the due formality of bankruptcy proceedings. The court was satisfied that the matters stated in the petition, including service and the existence of the debt, had been proven.
The court concluded that Mr Bates had a prima facie entitlement to a sequestration order. While the first two grounds of opposition were rejected, the third ground, concerning non-compliance with the Bankruptcy Rules, was addressed. The consequences of this non-compliance were to be decided at a later time, with orders made for a further adjournment to allow for submissions on whether a sequestration order ought not be made for sufficient cause.
Orders
Orders of the court
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Background
Background to the litigation
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Evidence
Evidence Before The Court
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Decision
Reasons for decision
Non-compliance with that rule occurred in the circumstances and in the context of the matters which have been addressed above.CONCLUSION These reasons explain why I have rejected the submission that the obligations to file and serve a notice of address for service, a notice stating each ground on which it was intended to oppose the petition and an affidavit in support of each ground are not utterly irrelevant or otiose for the purposes of a de novo hearing of the petition. They also explain why I am satisfied by proof of each of the matters stated in the petition including the facts necessary to engage the jurisdiction of this court to make a sequestration order. Service of the petition and the fact the debts upon which reliance was placed are still owing have each been proved. I have concluded that Mr Bates has a prima facie entitlement to the making of a sequestration order. The first and second ground of opposition to the petition have been rejected. The third, and principal, ground of opposition – non-compliance with the Bankruptcy Rules – has been addressed. The consequences of non-compliance with these requirements fall to be decided at a later time. Mr Bates has filed a written reply and confirmed his willingness to rely upon that submission and so obviate the need. Orders will be made to allow for the further adjournment of the hearing in order that, once Mr Martin has been able to obtain access to his file, he will be able to address the issues presented by s 306(1) of the Act and whether upon those bases his client has discharged the onus under par 52(2)(b) of satisfying the court that for other sufficient cause a sequestration order ought not be made.
Ratio Decidendi
Legal Principle Established
In light of Ms Bechara’s submission that it would entail serious error to regard her as being obliged on a de novo hearing to have filed a notice of appearance and notice of grounds of opposition to the petition together with an affidavit in support of those grounds, it is necessary to consider the applicable statutory framework, the nature of a de novo hearing, the procedural framework provided by the Bankruptcy Rules and FCC Rules and the consequences of non-compliance with those provisions as informed by relevant authority. For the reasons below, I do not accept that on a de novo hearing, a person who intends to appear at and oppose a creditor’s petition is relieved of the obligations which regulate the hearing of a petition.(1) Statutory framework – sequestration of a debtor’s estate Part III of the Act, Courts, comprises ss 27-37. This court shares jurisdiction in bankruptcy with full power to decide all questions, whether of law or fact, in any case of bankruptcy: s 27(1), 30(1). It may rescind, vary, discharge or suspend the operation of certain orders: s 37. Part IV of the Act is arranged in six divisions and, relevantly, provides by: Div 1, for Acts of Bankruptcy (ss 40-42); Div 2, for Creditors Petitions (ss 43-54), and; Div 4, for the Effects of Bankruptcy (ss 58-63). Where seized of jurisdiction, a Bankruptcy Court has power, subject to the conditions and constraints imposed by the Act, and where satisfied of the matters required by the Act, to make an order for the sequestration of the estate of a person who has committed an act of bankruptcy, including by failure to comply with a bankruptcy notice: Act, ss 27, 40, 41, 43, 44 and 52. Pt IV of the Act, Div 2 concerns Creditors’ petitions. In aid of the jurisdiction conferred to make a sequestration order, the Bankruptcy Rules govern proceedings under the Act, make particular provision for creditors’ petitions and provide the procedures that regulate the entitlement of persons to appear at the hearing of a petition and what must be done by those who intend to oppose the making of a sequestration order. These provisions confirm the due formality of bankruptcy proceedings in general and of creditors’ petitions in particular. Before exercising discretion whether to make a sequestration order, the court shall require proof of the matters required by s 52(1), comprising proof of the matters in the petition, service and debt. Paragraph 52(1)(a) allows that for the purposes of proof of the matters stated in the petition, “the court may accept the affidavit verifying the petition as sufficient.” The permissive terms in which par 52(1)(a) authorises the court to accept a verifying affidavit as being sufficient for such purposes is explained by principles informing the conduct of a hearing of a creditor’s petition, including whether it is unopposed or opposed, whether the debtor or any other person intends to oppose the grant of relief, the grounds upon which it is intended to do so, the other evidence that is before the court and the parties’ submissions. The permissive nature of the power to accept the verifying affidavit as being sufficient proof may also be informed by whether a debtor has properly given notice of the grounds upon which it is intended to oppose the grant of relief at the hearing of the petition and an affidavit in support.