Beaman v Bond & Anor (No.2)
[2016] FCCA 3249
•23 December 2016
FEDERAL CIRCUIT COURT OF AUSTRALIA
| BEAMAN v BOND & ANOR (No.2) | [2016] FCCA 3249 |
| Catchwords: EVIDENCE – Admissibility of court ordered report by the trustee in bankruptcy. |
| Legislation: Bankruptcy Act 1924 (Cth) Bankruptcy andFamily Law Legislation Amendment Act 2005 (Cth) |
| Cases cited: Peter W Young, Fiduciary Obligations and Trustees in Bankruptcy (2009) 83 ALJ 263 |
| Applicant: | DIANNE ELIZABETH BEAMAN |
| First Respondent: | CRAIG DAVID BOND |
| Second Respondent: | DANIEL PETER JURATOWITCH IN HIS CAPACITY AS TRUSTEE OF THE BANKRUPT ESTATE OF CRAIG DAVID BOND |
| File Number: | PEG 169 of 2014 |
| Judgment of: | Judge Antoni Lucev |
| Hearing date: | 9, 10, 11 March and 4 September 2015 |
| Date of Last Submission: | 4 September 2015 |
| Delivered at: | Perth |
| Delivered on: | 23 December 2016 |
REPRESENTATION
| Counsel for the Applicant: | Mr P J Hannan and Mr D H Solomon |
| Solicitors for the Applicant: | Solomon Brothers |
| Counsel for the First Respondent: | Ms K F Banks-Smith SC |
| Solicitors for the First Respondent: | Gadens | |
| Counsel for the Second Respondent: | Mr D K Skender | |
| Solicitors for the Second Respondent: | Hall & Wilcox |
ORDERS (made on 16 December 2016)
That the application filed 17 June 2014, as amended by an amended application filed on 26 February 2015, be dismissed.
The Reasons for Judgment be published electronically from Chambers at a later date.
The applicant to pay the costs of the first respondent and the second respondent, which, if not agreed, are to be taxed by a Registrar of this Court in accordance with the Federal Court Rules 2011 (Cth).
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT PERTH |
PEG 169 of 2014
| DIANNE ELIZABETH BEAMAN |
Applicant
And
| CRAIG DAVID BOND |
First Respondent
| DANIEL PETER JURATOWITCH IN HIS CAPACITY AS TRUSTEE OF THE BANKRUPT ESTATE OF CRAIG DAVID BOND |
Second Respondent
REASONS FOR JUDGMENT
Introduction and application
The applicant, Dianne Elizabeth Beaman, (“Ms Beaman”) has filed an application which, amongst other orders, seeks, pursuant to an amended application filed on 26 February 2015, that the bankruptcy of the first respondent, Craig David Bond (“Mr Bond”), being Administration number WA562 of 2014/6 under a debtors petition accepted by the Official Receiver on 5 June 2014 (“Mr Bond’s Petition”), be annulled pursuant to s.153B of the Bankruptcy Act 1966 (Cth) (“Bankruptcy Act”). Other consequential orders are sought in the event that the annulment application is granted.
Orders sought in the amended application
In a schedule to the amended application filed on 26 February 2015 the grounds of the amended application are set out, essentially in narrative form, as follows:
1. Mr Bond became bankrupt (being Administration No WA 562 of 2014/6) pursuant to a debtor’s petition accepted by the Official Receiver on 5 June 2014 (“Mr Bond’s Petition”).
2. By reason of some or all of the matters set out below, Mr Bond’s Petition should not have been presented because such presentation constituted an abuse of process as it was not for a purpose provided by s.55 of Bankruptcy Act 1966 (Cth) but for a collateral purpose of frustrating proceeding NO PTW 1379 of 2010 and/or to frustrate the payment to the Applicant of the sum of $100,000 pursuant to the orders made by Justice Crisford of the Family Court of Western Australia on 26 February 2013.
3. The 2005 (marriage) and 2008 (de facto) amendments to the Bankruptcy Act 1966 (Cth) and the Family Law Act 1975 (Cth) overcame the inability of the non-bankrupt spouse to obtain property settlement orders pursuant to section 79 of the Family Law Act 1975 (Cth) in respect of the property of the bankrupt spouse vested in that spouse’s trustee in bankruptcy.
4. In Western Australia, unlike other States, de facto property disputes are not subject to the Family Law Act 1975 (Cth) because the Western Australian Parliament has not referred the requisite powers to the Commonwealth. Instead, such disputes are governed by Part 5A of the Family Court Act 1997 (WA). The concept of “vested bankruptcy property” has not yet been incorporated into the Family Court Act 1997 (WA). The Family Legislation Amendment Act 2006 (WA) has received the Royal Assent, but Part 4 thereof (which deals with “vested bankruptcy property”) has not yet been proclaimed.
5. Ms Beaman and Mr Bond were in a de facto relationship in respect of which they had each executed a binding financial agreement (“BFA”). The BFA provides for Mr Bond to pay maintenance to Ms Beaman.
6. On 16 March 2010 Ms Beaman (as applicant) commenced Proceeding No PTW 1379 of 2010 (“Property Proceeding”) in the Family Court of Western Australia (“WA Family Court”) against Mr Bond (as respondent) under Part 5A of the Family Court Act 1997 (WA).
7. In the Property Proceeding Ms Beaman inter alia seeks:
(1) an order setting aside the BFA;
(2) property settlement orders against Mr Bond; and
(3) relief which will impact on Bond family related entities.
8. The WA Family Court has determined that Mr Bond has at no time complied with his obligation in the Property Proceeding to make a full and frank disclosure of his financial situation.
9. On 26 February 2013 the Honourable Justice Crisford made an order in the Property Proceeding which required Mr Bond to pay Ms Beaman $100,000 in respect of legal and forensic accounting fees to be incurred by Ms Beaman in the Property Proceeding so as to discover Mr Bond’s assets and financial resources.
10. Mr Bond currently owes Ms Beaman about $90,000 in arrears of maintenance under the BFA.
11. The order referred to in paragraph 9 above required compliance within 30 days of the date of the order. Mr Bond has not complied with that order.
12. On 9 April 2013 Ms Beaman made an application in the Property Proceeding for payment of the $100,000 referred to in paragraph 9 above.
13. On 11 April 2013 Mr Bond signed an authority (“Section 188 Authority”) under section 188 of the Bankruptcy Act 1966 (Cth) in favour of Christopher Michael Williamson and David Ashley Norman Hurt (“Messrs Williamson & Hurt”).
14. On 11 April 2013 Mr Bond signed a statement of affairs (“Mr Bond’s Section 188 SofA”) in support of the Section 188 Authority.
15. Mr Bond’s Section 188 SofA listed a number of creditors, including the following creditors conceded by Mr Bond to be “related party creditors”:
(1) Fairoak Pty Ltd as trustee for the Greenplace Trust: Loan of $2.85M incurred in September 2006.
(2) Tambar Pty Ltd as trustee for the Craig Bond Investment Trust: Beneficiary loan of $567,580.
(3) Tambar as trustee for the Craig Bond Trading Trust: Beneficiary loan of $761,346.
(4) Sunland Nominees Pty Ltd as trustee for the Upp Hall Trust: Beneficiary loan of $245,081.
16 Mr Bond has never produced any demands made on him by any Bond family related parties listed in Mr Bond’s Section 188 SofA.
17. The other liabilities listed in Mr Bond’s Section 188 SofA are of a small magnitude and were not such as to pressure Mr Bond into an arrangement under Part X of the Bankruptcy Act 1966 (Cth).
18. At all material times Ms Beaman was Mr Bond’s only pressing creditor.
19. At all material times Mr Bond has enjoyed, and still enjoys, a lavish lifestyle well beyond the means of a person genuinely in need of protection under the Bankruptcy Act 1966 (Cth).
20. Bond family related parties have in the past provided Mr Bond with the financial resources necessary to fund the lavish lifestyle referred to in paragraph 19 above.
21. The Section 188 Authority had the effect of preventing property settlement orders under Part 5A of the Family Court Act 1997 (WA) being made in the Property Proceeding.
22. The Section 188 Authority had the effect of:
(1) hampering the progress of the Property Proceeding to Mr Bond’s advantage and Ms Beaman’s detriment; and
(2) frustrating Ms Beaman’s attempts in the Property Proceeding to obtain a full and accurate picture of Mr Bond’s financial circumstances.
23. On 15 May 2013 Ms Beaman (as applicant) commenced Proceeding No WAD 147 of 2013 in the Western Australia District Registry of the Federal Court of Australia (“Section 188 Proceeding”) against Mr Bond (as first respondent) and Messrs Williamson & Hurt (as second respondents).
24. On 31 May 2013 the Federal Court of Australia made an order cross vesting the Section 188 Proceeding to the WA Family Court where it became Proceeding No PTW 3223 of 2013.
25. In the Section 188 Proceeding Ms Beaman sought inter alia an order pursuant to section 208 of the Bankruptcy Act 1966 (Cth) releasing the property of Mr Bond from control under Division 2 of Part X of the Bankruptcy Act 1966 (Cth).
26. On 4 April 2014 the Honourable Justice Crisford made an order in the Section 188 Proceeding whereby, pursuant to section 208 of the Bankruptcy Act 1966 (Cth), the property of Mr Bond was released from control under Division 2 of Part X of the Bankruptcy Act 1966 (Cth).
27. The order referred to in paragraph 26 above had the effect of permitting property settlement orders under Part 5A of the Family Court Act 1997 (WA) being made in the Property Proceeding.
28. The order referred to in paragraph 26 above had the effect that the Section 188 Authority no longer:
(1) hampered the progress of the Property Proceeding to Mr Bond’s advantage and Ms Beaman’s detriment; and
(2) frustrated Ms Beaman’s attempts in the Property Proceeding to obtain a full and accurate picture of Mr Bond’s financial circumstances.
29. On 22 April 2014 Mr Bond (as appellant) commenced Proceeding No WAD 93 of 2014 in the Western Australia District Registry of the Federal Court of Australia (“Federal Court Appeal”) against Ms Beaman (as first respondent) and Messrs Williamson & Hurt (as second respondents).
30. The Federal Court Appeal purports to appeal to the Full Court of the Federal Court of Australia the order referred to in paragraph 26 above.
31. On 30 April 2014 the Honourable Justice Crisford dismissed an application by Mr Bond in the Section 188 Proceeding for a stay of the order referred to in paragraph 26 above pending the outcome of the Federal Court Appeal.
32. On 30 April 2014 the Honourable Justice Crisford also made an order in the Section 188 Proceeding whereby Ms Beaman and Mr Bond were ordered to forthwith authorise and direct Messrs Williamson & Hurt to pay $100,000 into the trust account of Ms Beaman’s solicitors in accordance with the orders referred to in paragraph 9 above. Mr Bond did not comply with that order.
33. By a letter dated 21 May 2014 from Ms Beaman’s solicitors to Mr Bond’s solicitors, Ms Beaman asked Mr Bond whether he had complied with the orders referred to in paragraph 32 above.
34. There was no response on behalf of Mr Bond to the letter referred to in paragraph 33 above until the letter referred to in paragraph 36 below.
35. On 28 May 2014 Mr Bond filed an application in the Federal Court Appeal seeking a stay of the orders referred to in paragraphs 26 and 32 above.
36. By a letter dated 28 May 2014 from Mr Bond’s solicitors to Ms Beaman’s solicitors, Mr Bond responded to the letter referred to in paragraph 33 above by stating that an application had been made in the Federal Court Appeal for a stay of the orders referred to in paragraphs 26 & 32 above.
37. On 29 May 2014 Ms Beaman filed an application in the Section 188 Proceeding seeking orders enforcing the orders referred to in paragraph 32 above. The return day of that application was 5 June 2014.
38. On 3 June 2014 the stay application referred to in paragraph 35 above was heard by the Honourable Justice Barker.
39. On 3 June 2014 the Honourable Justice Barker made an order in the Federal Court Appeal dismissing the stay application referred to in paragraph 35 above.
41. At no time before Mr Bond’s Petition was presented to the Official Receiver did Mr Bond or his solicitors give notice to Ms Beaman or her solicitors that Mr Bond intended to present a debtor’s petition.
42. Had Ms Beaman received adequate notice of Mr Bond’s intention to present a debtor’s petition, Ms Beaman would have applied for an injunction restraining Mr Bond from presenting a debtor’s petition.
43. Had Ms Beaman applied for an injunction restraining Mr Bond from presenting a debtor’s petition it is probable that Ms Beaman would have obtained such an injunction.
44. Mr Bond’s Petition was presented to the Official Receiver on 5 June 2014 – ie the return day of the application referred to in paragraph 37 above.
45. Upon the Official Receiver’s acceptance of Mr Bond’s Petition, Mr Juratowitch became the trustee of Mr Bond’s bankrupt estate.
46. On 5 June 2014 the Honourable Justice Crisford made orders in the Section 188 Proceeding (on the application referred to in paragraph 37 above) whereby a Registrar of the Family Court of Western Australia was directed to sign on behalf of Mr Bond the direction and authority the subject of the orders referred to in paragraph 32 above.
47. On 5 June 2014, after the Honourable Justice Crisford had pronounced the orders referred to in paragraph 46 above, Mr Juratowitch gave written notice to Messrs Williamson & Hurt and Ms Beaman’s solicitors of the matters referred to in paragraphs 44 and 45 above.
48. If Mr Bond’s bankruptcy pursuant to the acceptance of Mr Bond’s Petition is not annulled, then Ms Beaman will be unable to obtain property settlement orders against Mr Bond under Part 5A of the Family Court Act 1997 (WA) in the Property Proceeding.
49. Ms Beaman has incurred very large amounts of legal fees (“Ms Beaman’s Legal Fees”) in respect of the:
(1) Property Proceeding;
(2) Section 188 Proceeding; and
(3) Federal Court Appeal.
50. By reason of the matters referred to in paragraph 48 above, if Mr Bond’s bankruptcy pursuant to the acceptance of Mr Bond’s Petition is not annulled, then Ms Beaman’s Legal Fees will have been wasted.
51. Messrs Williamson & Hurt have incurred costs (including legal fees), charges and remuneration well in excess of $100,000 arising out of the:
(1) Section 188 Authority;
(2) Section 188 Proceeding; and
(3) Federal Court Appeal.
52. Very large amounts of legal fees (“Mr Bond’s Legal Fees”) have been incurred in respect of Mr Bond’s:
(1) defence of the Section 188 Proceeding;
(2) prosecution of the stay applications referred to in paragraphs 31 and 35 above; and
(3) prosecution of the Federal Court Appeal.
53. Bond family related parties have funded Mr Bond’s Legal Fees.
54. Mr Bond’s Legal Fees exceed the total of the obligations referred to in paragraphs 9 and 10 above.
55. By reason of the matters referred to above, Mr Bond has evinced a purpose to frustrate the Property Proceedings, being a purpose foreign to the purpose of section 55 of the Bankruptcy Act 1966 (Cth).
Evidence
Although Mr Bond did not give evidence in these proceedings, a considerable volume of evidence was otherwise led by Ms Beaman, Mr Bond and Mr Bond’s trustee in bankruptcy, Daniel Peter Juratowitch (“Trustee”).
The evidence of Ms Beaman included:
a)Ms Beaman’s affidavit sworn 16 June 2014, which together with annexures ran to 169 pages (“Beaman’s June 2014 Affidavit”);
b)Ms Beaman’s affidavit sworn 1 September 2014, which together with annexures ran to 205 pages (“Beaman’s September 2014 Affidavit”);
c)the affidavit of Tamisha Kim Gadsdon sworn 9 February 2015, which together with annexures ran to 236 pages (“Gadson Affidavit”); and
d)the reply affidavit of Ms Beaman sworn 17 February 2015, which together with annexures ran to 200 pages (Beaman’s February 2015 Affidavit”).
The evidence on behalf of Mr Bond comprised an affidavit of Christopher Michael Williamson of 26 February 2015, who together with Mr David Hurt, was for a time a trustee of Mr Bond’s property pursuant to the terms of Part X of the Bankruptcy Act, and which with annexures ran to 12 pages (“Williamson Affidavit”).
The evidence led by the Trustee comprised the affidavit of the Trustee, in three volumes, and with annexures ran to 1164 pages (“Trustee’s Affidavit”).
There were also eight exhibits tendered during the proceedings, as follows:
a)Exhibit 1 being a bundle of documents from the Australian Taxation Office (“ATO”) to Mr Bond dated 1 March 2013, 27 March 2013 and 10 April 2013;
b)Exhibit 2 being a bundle of documents annexed to an email to the Trustee dated 29 April 2014;
c)Exhibit 3 being a bundle of documents under cover of an email sent to the Trustee dated 4 June 2014;
d)Exhibit 4 being a circular to creditors from the Trustee dated 25 June 2014;
e)Exhibit 5 being a circular to creditors from the Trustee dated 17 October 2014;
f)Exhibit 6 being a circular to creditors from the Trustee dated 3 March 2015;
g)Exhibit 7 being an order of Justice Crisford of the Family Court of Western Australia (“WA Family Court”) dated 10 June 2014; and
h)Exhibit 8 being an order of the WA Family Court dated 2 July 2014.
At the hearing of the matter the Trustee was cross-examined and the parties otherwise put submissions in relation to the annulment application.
Ms Beaman objected to parts of the Trustee’s Affidavit, and in so doing made submissions and objections to the following effect:
a)there is longstanding authority that in bankruptcy proceedings the rules of evidence must be followed, including the rule against hearsay: Burwell Technologies Pty Ltd v Hayward [2007] FMCA 615 at [5] per Burnett FM, referring to Re Riggs; Ex parte Commissioner of Taxation (WA) (1986) 9 FCR 149 at 150-151 per Toohey J;
b)section 59(1) of the Evidence Act 1995 (Cth) (“Evidence Act”) provides:
Evidence of a previous representation made by a person is not admissible to prove the existence of a fact that it can reasonably be supposed that the person intended to assert by the representation.
c)various parts of the Trustee’s Affidavit are couched in terms of “Mr Bond said”: see, for example, paras 43, 47, 55, 64, 65, 68, 148, 185, 199, 207, 224, 236, 248, 259, 261, 269, 271, 275, 280, 281, 287, 356 - 398, 404, 405, 417, 437, 478, 482 - 484, 510 - 515, 531 - 534, A6, A9, A12, Al5, Al8, A21, A24, A27, A30, A33, A36, A39, A42, A43, A47, A50, A51, A56, A59, A62, A65, A68, A71, A74, A77, A80, A83, A86, A89, A92, A95, A98, A101, A104, Al07, Al 10, Al 13, Al 16, A119, Al22,, Al25, A128, Al31, Al34, Al37, Al40, A143, A146, A149, A152, A155 and A160. Note also paras 87, 98 (b), 98 (d), 127, 128 and 329 of the Trustee’s Affidavit in respect of a Ms Silva. Such evidence is hearsay: James v Woodgate [2012] FMCA 1214; (2012) 273 FLR 22 at [9]-[11] per Raphael FM; Agresta v Agresta [2015] FCA 46; (2015) 12 ABC(NS) 429 at [15]-[18] per Gleeson J;
d)further, some of that hearsay evidence is “second hand hearsay” in that the Trustee is relying on what his subordinates told him that Mr Bond said to them: see [16], [19(h)] and [484] of the Trustee’s Affidavit;
e)there is no signed record of examination under s.81 of the Bankruptcy Act which might arguably be admissible for the purposes of s.69 of the Evidence Act: Fodare Pty Ltd v Shearn [2010] NSWSC 737; (2010) 240 FLR 187 at [31]-[56] per Barrett J;
f)Ms Beaman objects to the Trustee’s reliance on matters mentioned by Mr Bond. Mr Bond has chosen not to file an affidavit and should not be allowed to “give evidence through” the Trustee. The exception in s.63 of the Evidence Act to the hearsay rule does not apply because there is no suggestion that Mr Bond is not available to be called as a witness by the Trustee. Further, the Trustee has not given the notice required by s.67 of the Evidence Act;
g)furthermore, the Trustee’s Affidavit purports to express opinions (under s.79 of the Evidence Act) on matters; but the opinions are speculation and not based on specialized knowledge. Accordingly, those statements are inadmissible under s.76 of the Evidence Act. Paragraphs objected to on this ground are 106, 483(b) second sentence, 513, 514, 516, 517 and 534: Honeysett v The Queen [2014] HCA 29; (2014) 253 CLR 122; (2014) 311 ALR 320; (2014) 237 A Crim R 589; (2014) 88 ALJR 786.
h)section 135 of the Evidence Act relevantly provides:
The court may refuse to admit evidence if its probative value is substantially outweighed by the danger that the evidence might:
(a) be unfairly prejudicial to a party;
i)even if Mr Bond is otherwise entitled to “give evidence through” the Trustee (which he is not), such evidence should be excluded under s.135(a) of the Evidence Act: Ferella v Otvosi [2006] FMCA 334; (2006) 197 FLR 451 at [44] and [45] per Barnes FM (“Ferella”).
Pursuant to an order of this Court made on 14 July 2014 under r.7.04 of the Federal Circuit Court (Bankruptcy) Rules 2006 (Cth), the Trustee was ordered to file and serve a report (verified by affidavit) (which the Court will continue to refer to in an omnibus fashion as the “Trustee’s Affidavit”).
Rule 7.04 of the FCC Bankruptcy Rules provided as follows:
(1) If directed by the Court, the trustee must prepare a report for the periods before and after the bankruptcy or the administration of the estate of the deceased person.
(2) If the report is in relation to a bankrupt, the report must include information about:
(a) the bankrupt’s conduct; and
(b) the bankrupt’s examinable affairs; and
(c) the administration of the bankrupt’s estate.
(3) If the report is in relation to the estate of a deceased person, the report must include information about the administration of the deceased person’s estate.
(4) The report must:
(a) be in the form of an affidavit; and
(b) be filed at least 5 days before the date fixed for the hearing of the application
The Trustee has various duties under s.19 of the Bankruptcy Act. In considering and admitting proofs of debt, the Trustee is an officer of the Court, performing duties of an administrative nature to determine the bankrupt’s creditors, and therein the Trustee acts in a quasi-judicial capacity: Ex parte James; Re Condon (1874) 9 Ch App 609 at 614 per James LJ. The consideration and assessment of evidence, proofs and causes of action is a task with which a trustee in bankruptcy is familiar.
In Re Gore [1942] QWN 6 (“Re Gore”) the Federal Court of Bankruptcy refused to strike out hearsay in a report by the official receiver on an application by a bankrupt for an order discharging him from bankruptcy. Although certain provisions of the then Bankruptcy Act 1924 (Cth) were relied upon, it was further observed per Mansfield J that:
Further, I think it was one of the objects of the [Bankruptcy] Act to enable the official receiver to make a thorough investigation of all matters pertinent to the bankruptcy, and to place such matters before the Court unhampered by the ordinary rules of evidence. I therefore refuse to strike out the matters objected to.
Re Maher & Anor (1985) 7 FCR 240 (“Re Maher”) supports the general proposition that a trustee’s report is not subject to the rules of evidence. In that case the Federal Court observed as follows at 242-243 per Woodward J:
Clearly the trustee should not put forward irrelevant information, or intrude on the Court’s functions (Re Nassoor (No.2) (1936) 8 ABC 194), nor should he take a partisan approach to the application by only putting forward material unfavourable to the applicant and supporting the trustee’s opposition (Re Todd [1910] NSWStRp 17; (1910) 10 SR (NSW) 281). However, the trustee is under a duty to ensure that the Court has before it all material that will assist it in considering an application for discharge, and is not bound by the ordinary rules of evidence (Re Gore (1942) QWN 6). It is for the Court to decide the weight to be placed on matters contained in the report, and the Court has a wide discretion as to which matters and what evidence it can take into account (s.150(4)).
In Adsett Berlouis & Ors (1992) 37 FCR 201; (1992) 109 ALR 100; FCR at 208 per Northrop, Wilcox and Cooper JJ a Full Court of the Federal Court observed that:
… A trustee appointed in relation to a bankrupt becomes trustee of the bankrupt's estate. The trustee is bound to administer that estate in accordance with the Bankruptcy Act and Bankruptcy Rules 1968 (Cth). The trustee has a dual function: first, to administer the estate in the interests of the creditors and the bankrupt; second, to exercise, as a public duty and for the public welfare, certain powers given, and duties imposed, under the Act: see Re Campbell; Ex parte Official Trustee (1987) 13 FCR 326 at 329. The conduct of the trustee is subject to the supervision of the court (eg Div 4 of Pt VIII of the Act) and a trustee in bankruptcy has historically been regarded as an officer of the relevant court: see Ex parte James, Re Condon (1874) 9 Ch App 609 at 614; Scranton's Trustee v Pearse [1922] 2 Ch 87; Downs Distributing Co Pty Ltd v Associated Blue Star Stores Ply Ltd (In liq) (1948) 76 CLR 463 at 482; Re Henderson; Ex parte Tonkin (1934) 7 ABC 273 at 277-278. A trustee in bankruptcy who acts for remuneration is under a duty of care greater than that of a gratuitous trustee: see Re Silver Valley Mines (1882) 21 Ch D 381 CA at 386, 392. The trustee is required to bring reasonable skill to the performance of his or her duties: see Silver Valley Mines (supra) at 392; Re Alafaci; Registrar in Bankruptcy v Hardwick (1976) 9 ALR 262 at 284.
In Re Ayre; Ex Parte Deputy Commissioner of Taxation (1995) 130 ALR 648 at [26] per Drummond J (“Re Ayre”) the Federal Court observed that:
Service on the trustee is part of a process designed to give the court that deals with an annulment application assistance, in the form of information from its own independent officer relevant to whether the annulment should be granted. The provision by the trustee of this assistance is an element of his function of performing public duties for the public welfare: cf. Adsett v Berlouis (1992) 37 FCR 201 at 208. The requirement that notice of an annulment application be given to the trustee can thus be seen to be a consequence of the fundamental principle that proceedings in bankruptcy are not merely proceedings inter partes, that once an act of bankruptcy has been committed and the process of the Court has been put into motion, the case is thereafter affected with the interests of other creditors and the public: Boral Johns Perry Industries Pty. Limited v Piccardi (Full Federal Court, unreported, 27 June, 1989). It is to ensure that the Court is informed on how these other interests might be affected by an annulment that the trustee’s report is required. In this respect, the court dealing with an annulment application has the same sort of duty to enquire that rested on the Court when a discharge was sought under the old s. 150, a matter discussed in Re Kersten (1986) 65 ALR 372 at 378-379. The trustee’s role in reporting is not to present any partisan view point. But it is proper, and necessary, for him to bring to the attention of the Court any matters of which he has become aware in the course of his administration that might bear upon whether the annulment should be granted or refused and he is entitled, if the information he has justifies it, to support or oppose the application: cf. the discussion of the trustee’s role with respect to a discharge application in Re Todd [1910] NSWStRp 17; (1910) 10 SRNSW 281 at 287-289 and in Re Maher [1985] FCA 309; (1985) 7 FCR 240 at 242-243.
(emphasis added).
In Re Robinson; Ex parte Geroff v Turner (1993) 40 FCR 151; (1993) 117 ALR 131; FCR at 153-154 per Cooper J (“Re Robinson”) and in Lukic v Official Trustee in Bankruptcy (1996) 21 Fam LR 48 [24]-[25] per Moss J (“Lukic”) it was said that a trustee in bankruptcy may express an opinion both as to the general financial situation of a bankrupt and as to the bankrupt’s solvency.
Two other cases deserve mention at this point: Quick v Stoland Pty Ltd (1998) 87 FCR 371; (1998) 157 ALR 615 (“Quick”) and Ferella. Notably, neither of these cases concerned the admissibility of evidence of a trustee in bankruptcy. In Quick a qualified accountant and registered auditor with extensive experience as an insolvency practitioner was held to be a person with specialised knowledge based on his training, study and experience within the meaning of s.79 of the Evidence Act. He was therefore entitled to give evidence of his opinion wholly or substantially based on his specialist knowledge: Quick FCR at 374 per Branson J. The majority in Quick held that the accountant’s evidence was admissible. Justice Branson said that the accountant’s opinions were heavily based on matters of fact, and in some cases, arguably unsubstantiated factual inferences, but that the accountant’s “specialised knowledge does qualify him to form views and make judgments as to solvency based on financial statements and other material of the kind to which he refers in his report” and it was therefore the case that the opinions expressed by him were substantially based on his specialised knowledge within the meaning of s.79 of the Evidence Act: Quick FCR at 375 (and also 376) per Branson J. It was also held that the report was admissible to the extent that it did not amount to evidence of opinions based wholly or substantially on specialised knowledge of accounting and insolvency matters on the basis that it was relevant for a purpose other than proof of the facts thereby asserted, that purpose being the purpose of establishing the factual basis on which the accountant held the expert opinions expressed in the report (and thereby fell within the exception in s.60 of the Evidence Act): Quick FCR at 377 per Branson J. To the extent that a trustee in bankruptcy is an expert or a person whose evidence is based upon specialised knowledge Quick is therefore of some assistance.
The other majority Justice in Quick expressed the view that it was “not unusual for an accountant” to give evidence of his opinion on the financial condition of a company based on certain of the books and records of the company made available for inspection: Quick FCR at 382 per Finkelstein J. Whilst the other majority Justice expressed some doubt as to whether the accountant gave the evidence of an expert he held that the reasons for decision of the trial judge showed that the trial judge received “some assistance from the opinions expressed … and this is a sufficient basis for holding that his evidence was admissible”: Quick FCR at 383 per Finkelstein J.
In Ferella a specialist insolvency accountant’s evidence was rejected by the Federal Magistrates Court, because it was not evidence, but merely argument in favour of the debtor’s case, and therefore inadmissible. Further, even if it were admissible it was held that the report should be excluded from evidence as its probative value was substantially outweighed by its prejudice to the creditors: Ferella at [50]-[51] per Barnes FM. Ferella is therefore very much restricted to its particular facts, and is not inconsistent with Quick insofar as Quick sets out matters of principle.
Two further observations may be of assistance. Firstly,
A trustee in bankruptcy is classed as a fiduciary. …
Generally, a person who is a fiduciary owes two types of duties to those with whom he or she is in professional contact. In no particular order these are (a) a duty to use care and skill and (b) a duty to be trustworthy.
Justice Peter W Young, Fiduciary Obligations and Trustees in Bankruptcy (2009) 83 ALJ 263 at 264 (“Young, Trustees in Bankruptcy”).
Secondly, Young, Trustees in Bankruptcy makes the point that the duties of a trustee do not extend to personally performing administrative routine or mechanical tasks if that is not necessary. It is put thus:
Where a decision has to be made or policy needs to be set, the trustee must do what is necessary personally. …
… With administrative, routine or mechanical tasks, the trustee is expected to use common sense in having the task performed as economically as practicable. So, if a task can be done by an accounts clerk whose charge out rate is $200 per hour, it should not be done by a principal whose charge out rate is $450 an hour.
Young, Trustees in Bankruptcy at 266.
The point made immediately above in Young, Trustees in Bankruptcy demonstrates why it is that the Trustee’s Affidavit ought to be accepted in evidence insofar as it expresses an opinion as to Mr Bond’s solvency. What the Trustee has done is review information provided to him, and has applied his specialist knowledge to that information, to express an opinion concerning Mr Bond’s solvency. That is a high level decision which only the Trustee can make. The Trustee cannot have or be expected to have to make that decision on the basis of information gathered personally by him, particularly in complex cases. Thus, it must be the case that the hearsay objections to material in the Trustee’s Affidavit fall away, because that material is necessary to enable the Trustee to form his opinion as to Mr Bond’s solvency, and the vast bulk of it is not material which the Trustee can reasonably be expected to garner personally. The Trustee’s Affidavit, and the conclusion with respect to the solvency therein, is therefore admissible: Evidence Act, ss.60, 76, 79 and 80.
The Trustee’s Affidavit, and the opinion as to solvency therein, is admissible as expert evidence wherein an opinion is based upon specialised knowledge: Quick FCR at 375-377 per Branson J; Evidence Act, ss.60, 76, 79 and 80.
There is a further basis on which the Trustee’s Affidavit is admissible: that is that the Trustee is an independent officer of the Court whose evidence is, simply, of assistance to the Court, and admissible on that basis: Quick FCR at 383 per Finkelstein J. There is nothing in the various changes over the years to the Bankruptcy Act and the Evidence Act which would indicate that the special position of a trustee in bankruptcy has altered so as to make the rules of evidence apply in relation to a court ordered report: Re Gore; Re Maher; Re Robinson; Re Ayre.
The Trustee’s Affidavit is therefore admissible in relation to the narrow issue, namely an expression of opinion as to solvency, but also generally, in relation to the information contained therein, because in addition to informing the Trustee, it is that information which allows the Court to undertake the necessary inquiry that it must undertake to arrive at its judgment, that being an inquiry which it must still undertake having regard to the information put before it.
The question of the weight to be given to a trustee’s report has always been a matter for the relevant court, likewise the treatment of any prejudicial material in a trustee’s report. To the extent that the Evidence Act applies, s.135(a) of the Evidence Act can also be relied upon to exclude any prejudicial material.
Ms Beaman’s suggestion that the Trustee’s Affidavit is prejudicial is not made out. It is certainly not made out merely because the Trustee expresses an opinion as to solvency which does not assist Ms Beaman’s case. Otherwise, the basis for the allegation that the Trustee’s Affidavit is prejudicial is not readily apparent, and the Court’s view is that the Trustee’s Affidavit is not prejudicial, either to Ms Beaman, or to any of the other creditors who have lodged proofs of debt with the Trustee. In this case, the Trustee’s Affidavit is comprehensive and impartial, and the Trustee discloses the basis upon which he has formed his view that Mr Bond is insolvent and the Court can properly have regard to it.
In all of the above circumstances, and having regard to the law as set out above, the Court is of the view that it can have regard to and rely upon any opinion expressed by the Trustee’s in the Trustee’s Report, and in particular the Trustee’s opinion as to whether Mr Bond was at the relevant time, solvent or insolvent. Further, the Court can have regard to material and information gathered and contained within the Trustee’s Affidavit, particularly in relation to relevant books, records and accounts, including business records, and to Mr Bond’s statement of affairs and the proofs of debts submitted by creditors to the Trustee, in forming its own view as to Mr Bond’s solvency.
It follows from the foregoing that the objections to the Trustee’s Affidavit made by Ms Beaman must be dismissed.
Background
The background to this application is a proceeding (“Property Proceeding”) commenced in the WA Family Court on 16 March 2010, being PTW 1379 of 2010, under Part 5A of the Family Court Act 1997 (WA) (“WA FC Act”) by Ms Beaman as applicant, and including Mr Bond as first respondent.
On 26 February 2013, the WA Family Court made an order in the Property Proceeding which required Mr Bond to pay Ms Beaman $100,000 in respect of legal and forensic accounting fees to be incurred by Ms Beaman in the Property Proceeding so as to discover Mr Bond’s assets and financial resources (“Payment Order”).
On 9 April 2013, Ms Beaman applied to enforce the Payment Order.
On 11 April 2013, Mr Bond signed an authority under s.188 of the Bankruptcy Act (“Section 188 Authority”) in favour of Christopher Michael Williamson and David Ashley Norman Hurt (“Messrs Williamson & Hurt”). Ms Beaman submits that the Section 188 Authority had the effect of hampering the progress of the Property Proceeding.
On 11 April 2013, Mr Bond signed a statement of affairs (“Statement of Affairs”) in support of the Section 188 Authority. The Statement of Affairs listed a number of creditors, including the following creditors conceded by Mr Bond to be “related party creditors”:
a)Fairoak Pty Ltd (“Fairoak”) as trustee for the Greenplace Trust: loan of $2.85M incurred in September 2006 (“Fairoak Loan”);
b)Tambar Pty Ltd (“Tambar”) as trustee for the Craig Bond Investment Trust (“CBIT”): beneficiary loan of $567,580 (“First Tambar Loan”);
c)Tambar as trustee for the Craig Bond Trading Trust (“CBTT”): beneficiary loan of $761,346 (“Second Tambar Loan”); and
d)Sunland Nominees Pty Ltd (“Sunland”) as trustee for the Upp Hall Trust: beneficiary loan of $245,081 (“Sunland Loan”) (and collectively “the Loans”).
Mr Bond’s statement of affairs also lists a number of other creditors, namely:
a)David Deakin Davies for legal fees in the amount of $3,892;
b)American Express for a credit card debt in the amount of $2,977.18;
c)the Australian Taxation Office for a tax debt in the amount of $287,139;
d)Ms Beaman in relation to the Payment Order in the amount of $100,000;
e)O’Sullivan Davies for legal fees in the amount of $45,070;
f)Pitcher Partners for fees in the amount of $1,358;
g)Richard Ingleby for legal fees in the amount of $8,200; and
h)Sporting Bet for a loan in the amount of $50,200.
On 15 May 2013, Ms Beaman, as applicant, commenced proceedings in the Federal Court of Australia in matter WAD 147 of 2013 against Mr Bond, as first respondent, and Messrs Williamson & Hurt, as second respondents, seeking orders, including an order under s.208 of the Bankruptcy Act releasing the property of Mr Bond from control under Division 2 of Part X of the Bankruptcy Act (“Section 208 Proceeding”). The Section 208 Proceeding was cross vested from the Federal Court of Australia to the WA Family Court and became PTW 3223 of 2013. Ms Beaman submits that the objective of the Section 208 Proceeding was to “undo” the impact of the Section 188 Authority on the Property Proceeding.
On 4 April 2014 the WA Family Court made an order in the Section 208 Proceeding under s.208 of the Bankruptcy Act releasing the property of Mr Bond from control under Division 2 of Part X of the Bankruptcy Act (“Section 208 Order”). The Section 208 Order had the effect of permitting property settlement orders under Part 5A of the WA FC Act to be made in the Property Proceeding.
On 30 April 2014 the WA Family Court made an order in the Previous Bankruptcy Proceeding whereby Ms Beaman and Mr Bond were ordered to forthwith authorise and direct Messrs Williamson & Hurt to pay $100,000 into the trust account of Ms Beaman’s solicitors in accordance with the Payment Order (“Payment Authorisation Order”). Mr Bond did not comply with the Payment Authorisation Order.
On 29 May 2014, Ms Beaman filed an application in the WA Family Court in the Section 208 Proceeding seeking an order enforcing the Payment Order and Payment Authorisation Order. The return day of that application was 5 June 2014.
On 5 June 2014, Mr Bond became bankrupt pursuant to the Petition which was accepted by the Official Receiver, and the Trustee was appointed trustee in bankruptcy of the estate of Mr Bond.
On 5 June 2014, the WA Family Court made orders in the Section 208 Proceeding whereby a Registrar of the WA Family Court was directed to sign the Payment Authorisation Order on behalf of Mr Bond (“Registrar’s Authorisation Orders”).
On 5 June 2014, after the WA Family Court had pronounced the Registrar’s Authorisation Orders, the Trustee gave notice to Messrs Williamson & Hurt and Ms Beaman’s solicitors of the Petition.
Further litigation and legislative history
In order to understand the importance of this application, especially to Ms Beaman, it is necessary to set out a little more detail of the litigation and legislative history, and to put that into context by reference to the relief sought in this application.
In the Property Proceeding Ms Beaman claims relief from Mr Bond by way of property settlement under Part 5A of the WA FC Act.
The concept of “vested bankruptcy property” was incorporated into the Family Law Act 1975 (Cth) (“FL Act”) in relation to financial matters between married persons: Bankruptcy andFamily Law Legislation Amendment Act 2005 (Cth) (“BFLL Amendment Act”). The BFLL Amendment Act dealt with a bankrupt’s vested property and the difficulties occasioned by the involvement of trustees in bankruptcy: Pacelli & Hopkinson [2010] FMCAfam 1248 at [19], [24], [25] & [30] per Burnett FM. The same issue was later dealt with by amendment to the FL Act in relation to financial matters between de facto couples: Family Law Amendment (De Facto Financial Matters and Other Measures) Act 2008 (Cth) (“FL De Facto Amendment Act”).
The BFLL Amendment Act and FL De Facto Amendment Act amendments to the Bankruptcy Act and the FL Act were intended to overcome the inability of a non-bankrupt spouse to obtain property settlement orders for property of the bankrupt spouse vested in the spouse’s trustee in bankruptcy: FL Act, s.79; Bryson & Pember [2013] FamCA 43 at [9]-[13] per Forrest J.
In Western Australia, however, de facto property disputes are not subject to the FL Act because the Western Australian Parliament has not referred the requisite powers to the Commonwealth. De facto property disputes in Western Australia are governed by Part 5A of the WA FC Act, which has not yet incorporated the concept of “vested bankruptcy property”. The Family Legislation Amendment Act 2006 (WA) has received the Royal Assent, but Part 4 thereof, which deals with “vested bankruptcy property”, has not yet been proclaimed.
The importance, particularly of the further legislative history set out above, is that if Mr Bond’s bankruptcy is not annulled, then Ms Beaman will be:
a)unable to obtain effective property settlement orders against Mr Bond under Part 5A of the WA FC Act in the Property Proceeding; and
b)deprived of the benefit of her success in the Section 208 Proceeding.
The background to the filing of the Petition
The Petition, and its presentation, and subsequent acceptance by the Official Receiver, must have regard to the factual context at the material time or times. The factual context included the following matters:
a)in the Section 208 Proceeding the WA Family Court was not satisfied that Mr Bond was solvent: Beaman and Bond [2014] FCWA 21 at [74] per Crisford J (“Beaman FCWA”), and in that regard it is relevant to note that the WA Family Court said at [71] and [74] per Crisford J as follows:
71 When one winnows the objective evidence from the analysis put forward by Ms Beaman it is apparent that Mr Bond is reliant on the availability of loan funds and discretionary or voluntary payments being made to him. These two facts do not enhance his solvency.
74 I am not satisfied that, in accordance with the requirements of the BA [Bankruptcy Act], Mr Bond is solvent.
b)creditors lodged proofs of debt in the Part X administration, thereby informing Mr Bond of the extent of debts claimed from him and that they sought to share in the estate. Relevantly:
i)Ms Beaman claimed to be owed $2,514,193: Williamson Affidavit at [2] and Annexure CW1 (page 4) (“Williamson Affidavit”);
ii)Fairoak Pty Ltd (“Fairoak”) claimed to be owed $2,850,000: Williamson Affidavit at [2] and Annexure CW1 (pages 5-6);
iii)Sunland Nominees Pty Ltd (“Sunland”) claimed to be owed $245,081: Williamson Affidavit at [2] and Annexure CW1 (pages 7-8); and
iv)Tambar Pty Ltd (“Tambar”) claimed to be owed two sums, being $567,580 and $761,346 respectively: Williamson Affidavit at [2] and Annexure CW1 (pages 9-12);
(The loans due to Fairoak, Sunland and Tambar are referred to collectively as “the Loans”);
c)Ms Beaman’s proof of debt was admitted for voting purposes at a meeting of creditors on 21 May 2013 in the amount of $764,195: Williamson Affidavit at [3];
d)Mr Williamson as controlling trustee indicated in May 2013 that the debtor had ordinary unsecured creditors with claims in the sum of $5,478,526: Trustee’s Affidavit, Tab 3, page 39;
e)since at least November 2012 and in the months prior to signing the Part X Authority, demands had been made on Mr Bond by the ATO that Mr Bond did not meet (“ATO Debt”);
f)on 7 March 2013 Ms Beaman sought to restrain Mr Bond from dealing with the London Property: Beaman FCWA at [27] per Crisford J;
g)by the time of the acceptance of the Petition, whilst Mr Bond received financial support to meet day to day expenses (at the payer’s discretion), no payments had been forthcoming from third parties to meet his debts, including not only the debt owed to Ms Beaman but also certain legal fees and the ATO Debt: Trustee’s Affidavit at [75] (potentially apart from the Westpac credit card debt); and
h)by the time of the acceptance of the Petition, the only relevant available asset (the London Property) had been sold and funds were held on trust and not accessible by Mr Bond.
Therefore, at the time of the Petition, Mr Bond:
a)was on notice of creditors claiming to be owed $5,478,526 and seeking to share in his estate;
b)had no access to the London Property or its realisation proceeds;
c)had no access to other relevant realisable assets;
d)had been denied a stay of the Payment Order pending appeal;
e)was dependant on third parties to pay his day-to-day expenses at their discretion;
f)was not able to pay, or have paid, certain debts; and
g)had been found by the Family Court to be insolvent.
Consideration
Section 153B of the Bankruptcy Act provides as follows:
(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.
Ought not to have been presented
The Petition is a debtor’s petition. Ms Beaman asserts that the Petition, “ought not to have been presented”, and that its presentation was an abuse of process: Transcript, page 11. Ms Beaman appears to assert that presentation of the Petition was an abuse of process because:
a)Mr Bond was “not under any financial pressure” when the Petition was filed: Applicant’s Outline at [85];
b)she has been stymied in the Section 208 Proceeding: Applicant’s Outline at [13]; and
c)Mr Bond’s purpose in presenting the Petition was to frustrate the Section 208 Proceeding, that being a purpose foreign to the purpose of s.55 of the Bankruptcy Act: Amended Application, Schedule at [55].
As to Ms Beaman’s contentions set out above, Mr Bond says, in summary, that:
a)it has not been made out that Mr Bond was not under any financial pressure;
b)to the extent that the Section 208 Proceedings have been stymied, that is an inevitable outcome of the operation of the Bankruptcy Act common to many successful litigants, and is not an abuse of process;
c)he is insolvent, and therefore entitled to present the Petition, as he has done; and
d)even if the Court considered the Petition ought not have been presented, the Court’s discretion to annul ought not be exercised.
The question to be determined is therefore whether the Court is satisfied that the Petition “ought not to have been presented”. If the Court is satisfied that the Petition “ought not to have been presented”, the Court has a discretion as to whether or not to annul the bankruptcy: Heinrich v Commonwealth Bank of Australia [2003] FCAFC 315 at [20] per Carr, Finn and Sundberg JJ.
The onus of proving abuse of process is on the person alleging the abuse. The person alleging an abuse of process must show that the predominant purpose of using the process was one other than that for which it was designed: Suncorp Metway Insurance Ltd v Piccone [2005] FMCA 73; (2005) 3 ABC(NS) 82 at [19]-[25] per Rimmer FM (“Suncorp Metway”).
The circumstances in which a bankruptcy can be annulled on the basis that a debtor’s petition ought not to have been presented are limited. Those circumstances were summarised in Drake v Jones [2009] FMCA 298 at [30] per Barnes FM (“Drake”):
The power may be exercised where it is established that the presentation of the debtor’s petition was an abuse of process, for example where the debtor was not in fact insolvent but improperly sought bankruptcy as a “haven from a proper claim by a creditor” as discussed in Re Almassy (at [19]) (and see Re Moncada; Ex parte Moncada and Official Trustee in Bankruptcy (1986) 11 FCR 205); if it was for the purpose of placing the debtor’s estate beyond the reach of a person who would imminently become a creditor (see BWK Elders (Aust) Ply Ltd v White [2004] FCA 1611); or where a bankrupt had gone bankrupt twice in error (see Official Receiver (NSW), Re of D’Elboux [2002] FCA 510. In Re Mottee; Ex parte Mottee (1977) 29 FLR 406 Riley J stated in relation to the concept “ought not to have been presented” (which was then in s 154(1)(a) of the Bankruptcy Act) that “ ... in my opinion the consequent bankruptcy may be annulled where a debtor was not ‘entitled to use the machinery of the Bankruptcy Act’ (Re a Debtor; Ex parte Debtor v Allen [1967] Ch 590, at p 596) and the presentation of his petition may properly be characterized as an abuse of the procedure provided by s 55 ...”
Solvency
Generally, it will not be possible to establish that the debtor’s bankruptcy should be annulled on the ground that the petition ought not to have been presented when it was clear that at that time the bankrupt was insolvent: Re Coyle & Another (1993) 42 FCR 72; (1993) 120 ALR 527; FCR at 77-78 per Drummond J. The Court now has power to annul a bankruptcy whether or not the bankrupt was insolvent when the petition was presented: Bankruptcy Act, s.153B(2), but insolvency weighs heavily against the exercise of the discretion under s.153B of the Bankruptcy Act: Layton v Westpac Banking Corporation [2000] FCA 1752; (2000) 181 ALR 603 at [17] and [18] per Cooper J; Suncorp Metway at [20]-[21] per Rimmer FM (post the 2002 insertion of s.153B(2) of the Bankruptcy Act). There is no reason to distinguish the position where it is a creditor seeking to annul a bankruptcy.
Solvency may provide a basis for annulment: Drake at [31]-[33] per Barnes FM. A person is solvent, if and only if the person is able to pay all the person’s debts when they become due and payable: Bankruptcy Act, s.5(2). A person who is not solvent is insolvent: Bankruptcy Act, s.5(3). Solvency is relevantly expressed in terms of a debtor being “able to pay his or her debts”: Bankruptcy Act, s.52(2)(a).
If it can be proven that a debtor is solvent the Court may dismiss a Creditor’s Petition: Re Sanders; Knudsen and Yates (t/a The Hargreaves Practice) v Sanders [2003] FCA 1079; (2003) 1 ABC(NS) 408 at [22] per Bennett J (“Re Sanders”).
Solvency requires that the debtor be able to pay debts as they fall due out of the debtor’s own money. This includes both cash on hand and money reasonably quickly realisable by asset realisation. Temporary lack of liquidity will not generally constitute insolvency: Sandell v Porter& Anor (1966) 115 CLR 666; (1966) 40 ALJR 71; CLR at 670 per Barwick CJ. That the payment must be out of the debtor’s “own money” is an important qualification in this case.
As solvency means being “able to pay all … debts, as and when they become due and payable”: Bankruptcy Act, s.5(2), account must be taken of debts “which will fall due in the reasonably immediate future pursuant to existing obligations”: Re Sanders at [27] per Bennett J, and whether the debtor will be able to pay them: Re Sanders at [26] per Bennett J; International Alpaca Management Pty Ltd v Ensor [1999] FCA 72 at [8]-[10] per Katz J (“International Alpaca”); Bank of Australasia v Hill (1907) 4 CLR 1513 at 1527 per Griffith CJ.
In assessing solvency the Court ought not take account of realisable assets required for the a debtor to live a reasonably comfortable and dignified existence: International Alpaca at [15]-[16] per Katz J.
If a debtor is in a position to pay debts owed within a reasonable time, no sequestration ought be made: Re Sarina, Ex parte Council of the Shire of Wollondilly (1980) 43 FLR 163; (1980) 30 ALR 266; FLR at 165 per Deane J; Sarina v Council of the Shire of Wollondilly (1980) 48 FLR 372; (1980) 32 ALR 596; FLR at 376 per Bowen CJ, CA Sweeney and Lockhart JJ.
In the Section 208 Proceedings, Ms Beaman sought a declaration that Mr Bond was solvent, but was unsuccessful in that regard: Beaman June 2014 Affidavit, Annexure, DEB9. Ms Beaman claims that Mr Bond was “not under any financial pressure” at the time the Petition was presented and accepted by the Official Receiver. Although financial pressure and bankruptcy might be seen to go hand-in-hand the issue of solvency is not to be resolved by whether or not a person is under financial pressure, but whether or not they are able to pay their debts falling due in the reasonably immediate future having regard to existing obligations.
Mr Bond’s insolvency is a significant matter: and one which Ms Beaman seeks to avoid by her contention that he is not under financial pressure, a contention that she seeks to bolster by asserting that liability for the Loans is to be disregarded. For reasons set out below, the contention that the Loans ought to be disregarded cannot be sustained, but, and in any event, even if the Loans are disregarded, Mr Bond’s other debts otherwise make good his insolvency.
The Loans are documented in the books and records of Fairoak, Sunland and Tambar. As such, the Loans are admissible in evidence as business records: Evidence Act, s.69(2). The Trustee has gathered information about the Loans and assessed their veracity: Trustee’s Affidavit at Parts C.3, C.4, C.7, C.8, and Annexures 24, 28, 29 and 30. Mr Bond does not contend there are formal loan agreements in place apart from the acknowledgment of debt referred to in the Trustee’s Affidavit at [97] and [98].
Ms Beaman bears the onus of proving the Loans are not payable: Southern Cross Interiors Pty Ltd v Deputy Commissioner of Taxation [2001] NSWSC 621; (2001) 53 NSWLR 213; (2001) 164 FLR 430; (2001) 188 ALR 114; (2001) 39 ACSR 305 at [54] per Palmer J (“Southern Cross Interiors”). In Southern Cross Interiors at [54] per Palmer J where the Supreme Court of New South Wales set out the following propositions (albeit in the context of a company liquidation, but nevertheless applicable to a personal insolvency as well):
a)commercial realities were relevant in considering what resources are available in meeting liabilities as they fall due, and whether resources other than cash are realisable by sale or borrowing upon security, and when such realisations are achievable;
b)it is proper to have regard to the commercial reality that, in normal circumstances, creditors will not always insist on payment strictly in accordance with their terms of trade, but that does not result in there thereby being a casual credit resource which can be taken into account in determining solvency;
c)the commercial reality that creditors will normally allow some latitude in time for payment of the debts does not, in itself, warrant a conclusion that debts are not payable at the times contractually stipulated and had become debts payable only upon demand; and
d)it is for the party asserting that a contract debt is not payable at the times contractually stipulated to make good that assertion by satisfactory evidence.
The Court must determine whether there is evidence that there has been express or implied agreement between the debtor and the creditor (or creditors) as to when the creditor (or creditors) will expect the debt to be paid: Wily v Terra Cresta Business Solutions Pty Ltd [2006] NSWSC 1042 at [40] per Young CJ (“Terra Cresta Business Solutions”) where at [43] per Young CJ the New South Wales Supreme Court said the belief that debts would not be paid required factual circumstances supported on reasonable grounds, and that:
Reasonable grounds are based usually on an agreement, or estoppel, or some other understanding which, if not legally binding, would be accepted by reasonable persons of business as being reliable. It is insufficient that there has been support in the past and that there is no particular agreement as to what is to happen in the future. [emphasis added]
There is no evidence of any binding agreement by any related parties or any company associated with them that Mr Bond would be funded for any purpose for which he might want to use money: Terra Cresta Business Solutions at [44] per Young CJ. There is no evidence of any waiver, forgiveness, or ongoing promise of forbearance by any of the related parties in relation to the Loans. There is also no evidence which can properly support any such inference being drawn. The fact that:
a)the Part X process revealed that the related parties had kept records of the Loans, treated them as receivables, sought recovery of them and sought to share in the proceeds of Mr Bond’s estate; and
b)the related parties have lodged proofs of debt with the Trustee in relation to the Loans, and maintained those proofs of debt,
is sufficient evidence to demonstrate that no inference ought to be drawn that Mr Bond is not liable for the Loans, or that any liability that he has might be waived, forgiven, forborne or otherwise disregarded by the related parties. The Loans are on demand liabilities that must be taken into account in assessing solvency. Further, the Bankruptcy Act does not discriminate between debts of related as against unrelated parties: the fact that creditors are related does not diminish their status as creditors.
Ms Beaman’s assertion that Mr Bond was not under any financial pressure ignores the demands made by both the ATO, in relation to the ATO Debt and by Ms Beaman, prior to the Part X Authority, and the other proofs of debt lodged in the Part X regime. Setting aside the Loans, the proofs of debt lodged in the Part X regime show very significant debts. Mr Bond’s statement of affairs shows creditors, other than the parties to the Loans, again showing very significant debts. The proofs of debt submitted to the Trustee in the bankruptcy regime show, other than in respect of the Loans and from non-related parties, claims for debts of $811,357.23. The proofs of debt lodged in the bankruptcy from non-related parties include:
a)from Sporting Bet Pty Ltd for $49,922 for unsettled bets;
b)from American Express/David Jones Australia for $2,457.05 being a credit card debt;
c)from Ms Beaman for the payment of the Payment Order, court costs and spousal maintenance in the amount of $388,728.34;
d)from David Deakin Davies trading as David Deakin Davies & Co for legal fees in the amount of $4,290.32;
e)from the Deputy Commissioner of Taxation for income tax and Business Activity Statement amounts deficit debts the sum of $356,401.02;
f)from Dr Richard Ingleby for legal fees the sum of $8,200; and
g)from Pitcher Partners (WA) Pty Ltd for professional taxation services the sum of $1,358.50.
In Saxon Building Projects Pty Ltd v Donnelly (unreported, Federal Court of Australia, O’Connor J, 2 November 1998) the Federal Court refused an annulment application on the basis that the debtors were insolvent at the time of the annulment, and there were reasonable grounds for the debtors to believe that was the case. No matter how one dissects the evidence in these proceedings, and whether one has regard for the material in the Part X proceedings alone, or the material in Mr Bond’s statement of affairs, or the proofs of debt lodged in the bankruptcy, or all of the above, the inescapable conclusion is that, irrespective of the Loans, Mr Bond was substantially in debt, and on the available evidence, had no means to pay those debts as they fell due, and was thus insolvent.
At its highest, there is evidence that at their discretion, third parties have funded Mr Bond’s day-to-day living expenses, but leaving aside the Westpac credit card debt, they have not chosen to pay his outstanding debts. The ATO Debt has not been paid. Ms Beaman has not been paid. Other legal and accounting fees have not been paid. American Express has not been paid. A sports betting obligation has not been paid. There is no evidence to support any inference being drawn that Mr Bond has unlimited and unilaterally determined access to funds.
Ms Beaman asserts Mr Bond is supported in a “lavish” lifestyle. The question is not whether Mr Bond is living a lavish lifestyle, or, put differently, is a kept man, but whether the Petition ought not to have been presented. The test is a legal, not a lifestyle, one. Even if it is the case that Mr Bond is living a “lavish” lifestyle, there is no evidence that Mr Bond is able to dictate or enforce payments to him. The payers make such payments in their discretion and have indicated by their conduct an intention that they will not pay very substantial debts now owed by Mr Bond.
Mr Bond was therefore, in the Court’s view insolvent at the time he presented the Petition, and it cannot be said, on that basis, that the Petition ought not to have been presented.
Ms Beaman seeks to rely on AASB101 to persuade the Court to draw an inference that the Loans are not due and payable as they are non-recoverable debts within 12 months from the latest financial statements in evidence.
Those financial statements are statements of the trusts for the year ended June 2012. The financial statements expressly provide that no Australian Accounting Standards have been applied apart from AAS5 and AAS8. The Trust Deeds do not require reporting to be in compliance with AASB101: see the trust deeds in the Trustee’s Affidavit at pages 950 (clause 9); 975 (clause 9); 999 (clause 9) and 1032 (clause 13).The trusts are not reporting entities: see the statement in each report that, “The Trustees have determined that the trust is not a reporting entity”. Section 292(1) of the Corporations Act 2001 (Cth) does not therefore apply to the trusts.
Whether the Section 208 Proceedings have been stymied
A bankruptcy may be annulled where the purpose of the petition is to stymie another person in the prosecution of proceedings.
In BWK Elders (Australia) Pty Ltd v White [2004] FCA 1611; (2004) 3 ABC(NS) 70, the respondents lodged petitions at a time when the applicant had only an unprovable claim, although it was anticipated that the claim would be converted by judgment to a provable claim within days. At the time of lodging their petitions, the respondents were solvent. The effect of the respondents’ petitions was that their estates would have been available for distribution to only those creditors with provable claims at the time of the bankruptcy, and the applicant would have been barred from participating. Therefore, the applicant was excluded from the estate and the bankruptcy was annulled (the applicant filed its own creditor’s petition post judgment).
In Re Moncada; Ex parte Moncada (1986) 11 FCR 205, the respondent had filed “a grossly untrue affidavit,” was not insolvent at the time he filed his petition and in fact had assets, and did not reasonably believe he was insolvent. He claimed to have lost known assets by gambling money away and losing cash in a shed fire. The Federal Court considered his explanations as straining credulity. His former wife was his only substantial creditor. Therefore in light of his actual assets, the Federal Court considered he was solvent when the petition was presented. It also considered that in light of his asset position the purpose of the petition was to make it more difficult for his wife to recover the money he had been ordered to pay. The presentation of the petition was therefore an abuse. Taking into account the untrue affidavit, the Federal Court exercised its discretion to annul.
In Lukic, the Family Court of Australia (“Family Court”) was not satisfied that debts claimed by the debtor’s father and family company were substantiated (consistent with a view formed by the trustee in his report). Nor did it consider the debtor had made appropriate disclosure to the trustee. There were no relevant external creditors and no claims accepted by the trustee. The Family Court considered the debtor was not insolvent and did not believe himself to be insolvent. The debtor’s petition prevented his former wife from sharing in his estate. In those circumstances, the petition was annulled.
This is a case in which there are multiple creditors, including Ms Beaman, who are owed significant sums of money by Mr Bond, who is not able to personally repay them, and which are not being paid by third or related parties. For reasons set out above this is not a case where Mr Bond was solvent at the time the Petition was presented. Nor is it a case where it can be said that the Petition might stymie Ms Beaman alone. Even disregarding the Loans, it also cannot be said that there are not otherwise credible and substantial debts owed to persons other than the related parties and Ms Beaman. Finally, the debts owed to Ms Beaman are themselves substantial, and seemingly beyond the means of Mr Bond to repay within any reasonable period of time. In this case, Ms Beaman is entitled to share in Mr Bond’s estate and is entitled to all the rights of creditors under the Bankruptcy Act (including, for example, the right to appeal against the acceptance of the proofs of debt lodged by other creditors). Ms Beaman is still entitled to pursue proceedings in the WA Family Court. The effect on Ms Beaman is a result of the proper and ordinary application of the Bankruptcy Act. Further, it affects not only Ms Beaman, but all creditors, including the multiple external creditors.
There was no obligation on Mr Bond to give notice to Ms Beaman of his intention to present the Petition. What Ms Beaman says she would have done if she had been given such notice is therefore irrelevant, and, in any event, entirely speculative. Against the above background, the fact that the Petition was presented to the Official Receiver on the same day as the application for orders enforcing the Payment Order does not lead, without more, to the conclusion that the purpose of that presentation was to frustrate any other proceedings.
For the above reasons the Court is simply not satisfied that the Petition was presented in order to stymie the Section 208 Proceedings.
Was the Petition presented for a foreign purpose
It is a purpose foreign to the bankruptcy laws and an abuse of process, for a debtor to present a petition for the purpose of making it impossible for a creditor to obtain a sequestration order on a pending petition and with the further purpose of shortening the period of relation back, possibly placing him beyond the reach of the trustee property which would otherwise vest in the Trustee: Re Cornish; Ex parte English (1984) 6 FCR 257 at 259 per Morling J. See also Clyne v Deputy Commissioner of Taxation& Anor (1984) 154 CLR 589; (1984) 58 ALJR 398; (1984) 55 ALR 143; Clyne v Deputy Commissioner of Taxation (1984) 6 FCR 418 at 419 per Toohey, Jenkinson and Wilcox JJ.
A petitioner is entitled to use the machinery of the Bankruptcy Act for his own purposes so as to shield himself from further liability or harassment: Zodiac Investments Pty Ltd v Brelsford [1999] FCA 1482 at [5] per Cooper J, and it is not an abuse of the machinery of the Bankruptcy Act to take advantage of a recognised exemption from liability: Re Heenan; Ex parte Collins (t/a Hertz Carnarvon Auto Rentals) v Official Receiver (1992) 39 FCR 428; (1992) 116 ALR 146 at 434 per French J:
The Act as it stands reflects a strong legislative policy in favour of the exemption. It cannot be said, in the light of that policy, that an insolvent debtor who takes advantage of that exemption by filing a debtor’s petition does so for a purpose which was foreign to the bankruptcy law.
In this case, there is nothing in Mr Bond’s conduct which seeks to achieve some advantage for which the law is not designed or beyond what the law offers. Ms Beaman is not excluded from Mr Bond’s estate. There is no suggestion that Mr Bond has taken his course to affect any relation back period: nor is there any suggestion of voidable transactions which might otherwise be affected. Against the backdrop of the matters referred to above and in particular the finding by the WA Family Court that he is not solvent, Mr Bond has submitted to the jurisdiction of the Bankruptcy Act. Thus, Mr Bond’s assets and liabilities can be dealt with entirely in accordance with the provisions and intent of the Bankruptcy Act. Mr Bond obtains no special advantage. All creditors are treated in accordance with the Bankruptcy Act regime. Mr Bond’s actions are consistent with, and not foreign to, its purpose, because Mr Bond is insolvent and entitled to the protection of the Bankruptcy Act. Mr Bond’s actions are also consistent with the public interest in a bankrupt not continuing to accrue debts: Re Svir; Ex parte Commissioner of Taxation (1998) 83 FCR 314; (1998) 39 ATR 113; (1998) 154 ALR 170; FCR at 317 per Burchett J.
For the above reasons, the Court is not satisfied that the Petition was presented for a purpose foreign to the provisions of the Bankruptcy Act.
Conclusions and orders
The Court has concluded that there are no grounds for the annulment of Mr Bond’s bankruptcy. It follows that Ms Beaman’s application must be dismissed.
I certify that the preceding eighty-nine (89) paragraphs are a true copy of the reasons for judgment of Judge Antoni Lucev
Date: 23 December 2016
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