Begetis v Temperzone Australia Pty Ltd

[2007] FMCA 498

FEDERAL MAGISTRATES COURT OF AUSTRALIA

BEGETIS v TEMPERZONE AUSTRALIA PTY LTD [2007] FMCA 498

BANKRUPTCY – Application to review sequestration order – debt to petitioning creditor paid – debtor solvent – where trustee had incurred expenses in administration of estate – whether bankruptcy should be annulled.

Bankruptcy Act 1966 (Cth), ss.153B, 154
Federal Magistrates Court (Bankruptcy) Rules 2006 r.7.06
Federal Magistrates Act 1999, s.104

Cottrill v Wilcox [2001] FCA 866
Kryiackou v Shield Mercantile Pty Ltd (No.2) [2004] FCA 1338
Martin v Commonwealth Bank of Australia [2001] FCA 87
Moore v Wilson [2006] FCA 79
Pattison v Hadjimouratis [2006] FCAFC 153
Re Hatcher; Ex parte Hatcher (unreported Federal Court of Australia, French J, 4 November (1987)
Re Sarina; Ex parte Wollondilly Shire Council (1980) 43 FLR 163
Sandell v Porter (1966) 115 CLR 666 at 670
Sarina v Wollondilly Shire Council (1980) 48 FLR 372
Stankiewicz v Plata [2000] FCA 1185
Vaucluse Hospital Pty Ltd v Philiips & Anor [2006] FMCA 44

Applicant: BILL BEGETIS

Respondent: TEMPERZONE AUSTRALIA PTY LTD

Trustee (By Leave): CHRISTOPHER JOHN PALMER

File Number: SYG3038 of 2006

Judgment of: Barnes FM

Hearing date: 22 March 2007

Delivered at: Sydney

Delivered on: 13 April 2007

REPRESENTATION

Solicitors for the Applicant: Proctor Phair Lawyers

Solicitors for the Respondent: Aston Reid Lawyers

Solicitors for the Trustee in Bankruptcy: Woods Day

ORDERS

1. That the sequestration order made on 7 December 2006 be set aside.

2. That the creditor’s petition be dismissed.

3. That the debtor pay the costs of the petitioning creditor of these proceedings as agreed and in the absence of agreement taxed in accordance with the Federal Court Rules. 

4. That the debtor pay the legal costs of the trustee of and incidental to these proceedings in relation to the trustee’s report filed on 27 February 2007 and the costs of 16 March 2007 as agreed and in the absence of agreement taxed in accordance with the Federal Court Rules but that otherwise there be no order as to the trustee’s costs. 

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
SYDNEY

SYG3038 of 2006

BILL BEGETIS

Applicant

And

TEMPERZONE AUSTRALIA PTY LTD

Respondent

And by Leave

CHRISTOPHER JOHN PALMER

Trustee

REASONS FOR JUDGMENT

1. On 10 October 2006 Temperzone Australia Pty Ltd (the creditor) filed a creditor’s petition relying on a failure by Bill Begetis (the debtor) to comply with a bankruptcy notice no.NN2608 of 2006.  On 7 December 2006 a Registrar of this Court made a sequestration order against the estate of Bill Begetis.  The order was made in the absence of the debtor. 

2. On 21 December 2006 Mr Begetis filed an application for review, seeking orders that the bankruptcy notice NN2608 of 2006 be set aside and the creditor’s petition dismissed and the respondent creditor pay the debtor’s costs.  The debtor also filed a notice of intention to oppose the petition on the grounds that the bankruptcy notice was a nullity, invalidated and defective, that hence no act of bankruptcy was committed and that Mr Begetis was able to pay his debts and was solvent. 

3. The matter was listed for hearing on 16 January 2007.  On 16 January 2007 a legal representative appeared for the applicant and, by consent, the application was adjourned until 6 February 2007.  On 6 February 2007, the application was again adjourned by consent, until

   
   

   20 February 2007. 

4. On 20 February 2007 legal representatives for the bankrupt and the petitioning creditor appeared and sought that the Court make consent orders that the sequestration order made on 7 December 2006 be set aside and that the debtor pay the petitioning creditor’s costs.  No evidence was before the Court in relation to the payment of the debt, the debtor’s solvency or the existence or notification of any other creditor in accordance with Rule 7.06(5) of the Federal Magistrates Court (Bankruptcy) Rules.

5. An employee of the trustee in bankruptcy sought to appear to inform the Court of the position in relation to administration of the bankrupt’s estate.  The legal representative for the applicant objected to the trustee appearing otherwise than by properly instructed solicitor or counsel (see Re Hatcher; Ex parte Hatcher (unreported Federal Court of Australia, French J, 4 November 1987). Pursuant to Rule 7.06(6) the Court directed the trustee to prepare a report in relation to the bankrupt in accordance with Rule 7.04 of the Federal Magistrates Court (Bankruptcy) Rules 2006 and the matter was adjourned until 16 March 2007. 

6. The trustee, Christopher John Palmer, swore an affidavit of

   
   

   27 February 2007 which included the information that the bankrupt had failed to provide a statement of affairs or a completed income contribution questionnaire as requested.  On 16 March 2007 the debtor filed in court an affidavit of his solicitor, Damian Phair, attesting that the bankrupt had paid the petitioning creditor the amount claimed in the creditor’s petition (plus interest) on 6 February 2007, and as to notification of the Deputy Commissioner of Taxation (who, the Trustee had advised, had lodged a proof of debt against the estate of

   
   

   Mr Begetis, in the sum of $6,913.10).  On the basis that the petitioning creditor’s debt had been paid the debtor sought that orders be made in accordance with the proposed consent orders.  He had not filed any evidence as to solvency or as to the extent of his creditors.  The Trustee sought that his expenses of administration be met by the debtor. 

7. The matter was adjourned until 22 March 2007 so that the bankrupt could file and serve affidavit evidence in support of what was clarified to be an application to review the decision of the Registrar, to set aside the sequestration order and dismiss the creditor’s petition on the basis of the debtor’s solvency.  

8. On 19 March 2007 the bankrupt filed an amended application for review seeking that the sequestration order be set aside and that the creditor pay the debtor’s costs (although it was clarified that it was in fact intended that the debtor pay the creditor’s costs). 

9. It is now clear that the orders sought by the applicant are sought by way of a review of the exercise of the Registrar’s powers under s.104 of the Federal Magistrates Act 1999 (Cth). The application was made within the time prescribed. It is well established that a review of a Registrar’s decision under this provision is a hearing de novo. (See Martin v Commonwealth Bank of Australia [2001] FCA 87, Cottrill v Wilcox [2001] FCA 866 and Moore v Wilson [2006] FCA 79 at [40] per Mansfield J).

10. The petitioning creditor did not seek to put any evidence before the Court.  The solicitor for the creditor stated that while the petitioning creditor consented to the signed orders being made, it was a matter for the Court as to what orders were made on the review. 

11. The trustee sought to rely on affidavits of Christopher John Palmer sworn on 27 February 2007 and 22 March 2007.  The legal representative for the trustee advised that the trustee neither consented to nor opposed the application and would abide by the Court’s order but that he did seek an order that his remuneration and expenses incurred in the bankruptcy administration be paid.  When the question of how this might be done if the sequestration order was set aside was raised in the hearing on 22 March 2007 in light of the decision of the Full Court of the Federal Court in Pattison v Hadjimouratis [2006] FCAFC 153, the solicitor for the trustee sought that the bankruptcy be annulled rather than that the sequestration order be set aside.

12. I consider it appropriate to consider first the basis on which the bankrupt seeks that the sequestration order be set aside.  I note however that where review of a sequestration order is sought the Court can, in an appropriate case, take into account considerations relevant to an annulment application, such as the interest of creditors and the public policy considerations behind the Act. 

13. The solicitor for Mr Begetis clarified that he did not seek to rely on the grounds that the bankruptcy notice was a nullity and invalidated and defective or that no act of bankruptcy was committed, but rather on the ground that the debtor was able to pay his debts and was solvent. 

14. The applicant relied on the notice of opposition filed on 21 December 2006 but only pressed paragraph three, the affidavit of Damian Phair sworn on 15 March 2007 and filed on 16 March 2007, an affidavit of Bill Begetis sworn on 19 March 2007 and an affidavit of Damian Phair sworn on 20 March 2007.  He also sought to rely on the consent orders signed by the bankrupt and the petitioning creditor being an annexure to the affidavit of Damian Phair filed on 15 March 2007. 

15. The background to this application is that the applicant bankrupt has an air conditioning installation repair business.  He owed the petitioning creditor, Temperzone Australia Pty Ltd, moneys for their supply of air conditioning equipment.  Temperzone obtained a default judgment against him in the sum of $11,940.95 in the Parramatta Local Court.  A bankruptcy notice was issued and served on Mr Begetis on 23 July 2006.  On or about 3 August 2006 Mr Begetis paid the sum of $3,000 in cash to Temperzone.  On 19 October 2006 Temperzone presented and filed a creditor’s petition.  On 7 December 2006, the first return date, a sequestration order was made against Mr Begetis in his absence.  It is his unchallenged evidence that he arrived at the “court building” 15 minutes after the time for which the matter was listed with a cheque book and with the intention of paying the debt, but was confused as to where he had to go.  He could not find the court.  By the time he arrived at the courtroom his matter had been dealt with.  However it was not until 6 February 2007 that he paid the balance of the debt owed to Temperzone Australia ($9,048.03). 

16. It is also relevant to note that on 15 December 2006 the applicant received a letter dated 8 December 2006 from the trustee of his bankrupt estate which stated that he had been made a bankrupt (and also sought that he file a statement of affairs).  It is the trustee’s evidence that on 11 December 2006 the trustee sent a further letter requesting that the bankrupt complete an income contribution questionnaire.  Neither of those documents was completed by the bankrupt.

17. On 21 December 2006 the bankrupt filed the application for review.  Mr Phair, the solicitor for Mr Begetis, wrote to the trustee on that date, enclosing by way of service a copy of the application for review, notice of appearance and notice of intention to oppose application or petition and requesting that the trustee not do any further work in this matter. 

18. On 15 February 2007 Mr Phair received a letter from the trustee stating that the trustee estimated his costs as at 13 February 2006 (sic) to be approximately $3,500 inclusive of GST.  On 20 February Mr Phair received a letter which stated that the trustee’s estimated remuneration and disbursements for the period 7 December 2006 to 19 February 2007 was the sum of $5,777.39 inclusive of GST.  In his affidavit of 27 February 2007, the trustee advised that his estimated remuneration and disbursements for the period 7 December 2006 to 26 February 2007 was now $12,316.19.  In his affidavit of 22 March 2007 the trustee advised that his estimated remuneration and disbursements for the period of 7 December 2006 to “finalisation” was calculated in the sum of $17,498.84 inclusive of GST.   

19. It was submitted for the bankrupt that he had paid the debt owing to the petitioning creditor, so that the debt on which the creditor’s petition relied was no longer due or owing under s.52(1)(c), that no sequestration order could be made today and that, moreover, he was solvent and able to pay his debts in accordance with s.52(2)(a) of the Bankruptcy Act 1966 (Cth). On this basis it was sought that the sequestration order be set aside and the creditor’s petition dismissed. Mr Begetis did not seek an annulment.

20. In his affidavit of 19 March 2007 Mr Begetis provided information in relation to his assets and liabilities.  First, and this is consistent with the information that was available to the trustee, the only liabilities he has are said to be a debt to the Deputy Commissioner of Taxation in the sum of $6,913.15 and a mortgage to Aussie Mortgages Limited with his brother in relation to which, as at 5 January 2007, there was an outstanding amount of $265,096.65.  This mortgage is secured over a residential property in Regents Park in which the applicant and his brother each have a one half interest.  That property is “estimated” to be valued between $850,000 and $900,000.  The applicant calculated his share of the equity in this property, assuming the property was valued at the lesser amount of $850,000, as $292,451.68.  The debt to Temperzone Australia Pty Ltd had been paid including interest to the date of payment.    

21. I note in relation to the other creditor that on 27 February 2007 the solicitor for the bankrupt sent a facsimile letter to the Deputy Commissioner of Taxation enclosing a copy of the application for review and confirming that the date for the adjourned hearing was (at that stage) 16 March 2007 and that the applicant would be seeking orders, inter alia, that the sequestration order of 7 December 2006 be set aside.  There was no appearance for the Deputy Commissioner of Taxation in these proceedings.

22. The applicant also gave evidence as to assets including his business, tools of trade and vehicles.  On his figures he claimed to have net assets of $398,538.53.  In addition Mr Begetis gave evidence that he had an income as a self-employed air conditioning mechanic which, allowing for seasonal variation and after deduction of detailed living expenses, was said to demonstrate a surplus of income each week. 

23. The funds to be treated as available to the debtor to pay his debts for solvency purposes “… are not limited to his cash resources immediately available.  They extend to moneys with which he can procure by realisation by sale or by mortgage or by pledge of his assets within a relatively short period – relative to the size and amount of the debts and to the circumstances, including the nature of the business, of the debtor” (Sandell v Porter (1966) 115 CLR 666 at 670). I am satisfied on the evidence before me that the debtor is in a position to pay all the debts he owes within a reasonable time and hence ought not to be subject to a sequestration order (see Re Sarina; Ex parte Wollondilly Shire Council (1980) 43 FLR 163 and Sarina v Wollondilly Shire Council (1980) 48 FLR 372 at 376).

24. It is clear that the bankruptcy of Mr Begetis should be brought to an end. What is in issue is whether the sequestration order ought to be set aside pursuant to the review under s.104 of the Federal Magistrates Act as sought by Mr Begetis, or whether, as the trustee now seeks, the Court should, either instead of or in addition to setting aside the sequestration order, exercise its discretion to annul the bankruptcy pursuant to s.153B of the Bankruptcy Act 1966. The practical difference is that if the bankruptcy is annulled Mr Begetis will have to meet the costs and expenses of the trustee incurred in the administration of the estate under s.154 of the Bankruptcy Act. If it is not the trustee will be left to bear these expenses unless he seeks recovery at general law (Pattison v Hadjimouratis at [19] per Nicholson J but see Kyriackou v Shield Mercantile Pty Ltd (No.2) [2004] FCAFC 336 at [34] per Weinberg J).

25. The solicitor for the debtor initially took issue as with the right of the trustee to be heard in these proceedings.  The trustee did not file a notice of intention to oppose (Rule 2.06).  He neither consented to nor opposed the review application.  Having prepared a report in relation to the bankrupt he sought to be heard only in relation to whether the court should annul the bankruptcy rather than set aside the sequestration order.  He filed a notice of appearance and sought to be heard in relation to the orders to be made.  He did not file any application seeking annulment

26. I allowed the trustee to be heard and file material and required that the report prepared under Rule 7.06 be filed, as the debtor had not filed any evidence of solvency or as to any other creditors.  Indeed, had the debtor completed a statement of affairs as required the trustee’s report might well have demonstrated the solvency on which he subsequently relied. 

27. In relation to the annulment that is now sought by the trustee, while all the steps required by the rules have not been taken I did not consider that the debtor was prejudiced such that the trustee should not be heard (and see Jacobson J in Pattison at [80]). The debtor’s solicitor clearly understood that there was an issue as to whether the sequestration order was to be set aside or the bankruptcy annulled, as was apparent from his reliance on Vaucluse Hospital Pty Ltd v Phillips & Anor [2006] FMCA 44.

28. In Pattison v Hadjimouratis the majority of the Full Court of the Federal Court (Nicholson and Jacobson JJ) held that this Court has the power under s.104(3) of the Federal Magistrates Act 1999 when conducting a review of a sequestration order made by a registrar to consider the making of an annulment order instead of setting aside the sequestration order.  Nicholson J suggested that these orders were alternatives (at [18] – [20]).  Jacobson J suggested (at [80]) that it was open to the court to both dismiss the petition and at the same time make an annulment order, providing the proceedings were ‘properly constituted’ with the trustee being present, albeit not joined formally as a party.  Lander J was of the contrary view (at [229] – [231]), on the basis that if the Court reached the conclusion that the petition should have been dismissed, there would have been no valid sequestration order and no order to annul.  On the majority view in Pattison it is open to the court to consider “whether annulment is a preferable course in all the relevant circumstances” (Nicholson J at [20]). 

29. In Vaucluse Hospital Pty Ltd v Phillips & Anor [2006] FMCA 44, Reithmuller FM suggested at [75] that in such circumstances the Court should consider first whether the sequestration order should be affirmed. In this case it is clear that the bankruptcy of Mr Begetis should be brought to an end.

30. The applicant contended that in exercising its discretion as to whether the circumstances required that the bankruptcy be annulled (instead of the sequestration order being set aside), the Court should take into account the factors Reithmuller FM suggested were usually relevant, including whether the administration of the estate had resulted in events or transactions for which the protections of s.154 were reasonably required, whether the review had been filed and prosecuted in a timely fashion, the conduct of the parties and the circumstances leading to the sequestration order, including the nature of the debt and the amount of the debt (Vaucluse Hospital Pty Ltd at [76]).

31. Mr Phair for the debtor submitted, in particular, that the Court should have regard to the distinction between a review and an annulment application, and argued that while an annulment may be appropriate where there had been substantial administration or where there were other interested creditors, in this case the sequestration order should never have been made.  There were no other interested creditors before the court and the estate had not been administered (except that the obligatory forms had been sent to the bankrupt, a caveat placed on his property and later a report prepared for the Court).  These are all factors which support the applicant’s contention that the appropriate order is to set aside the sequestration order. 

32. I have also borne in mind that ordinarily a review application made within the time limit (as this was) would result in an order setting aside the sequestration order.  I have had regard to whether the review was prosecuted in a timely fashion and the conduct of the parties.  The review was initiated in a timely fashion, although adjournments were sought on 16 January and 6 February 2007.  When the matter came before the Court on 20 February 2007 the applicant had not notified creditors of the application.  Nor had he filed evidence of solvency.  The hearing was adjourned.  The applicant objected to the trustee’s attempt to appear to provide a report to the Court by an employee.  Thereafter the trustee was legally represented.  The report was filed.  However, as the bankrupt had not filed a statement of affairs or provided answers to an income contribution questionnaire, the trustee’s report did not provide evidence of solvency or details of creditors provided by the bankrupt (which might have avoided the need for a further adjournment for the debtor to file affidavit evidence).  While the trustee did not file any application seeking annulment, the fact that he sought the costs of the administration and his remuneration was brought to the applicant’s attention at least by 16 March 2007.  The subsequent adjournment was to enable the applicant to file evidence as to solvency. 

1. In Pattison Nicholson J suggested that in considering whether annulment “is the preferable course in all the circumstances” it is relevant to consider “whether the circumstances of the trustee’s conduct in the administration are such that the trustee should receive the protection for his or her costs, charges and expenses in the administration which would flow from an order of annulment as a consequence of s.153B of the Bankruptcy Act. Where the circumstances at issue in a review are such that the sequestration order ought not to have been made and it is set aside, the trustee will not have the benefit of the protection associated with annulment” (Nicholson J at [20]). 

2. Their Honours found no error in the Federal Magistrate’s exercise of his discretion in Pattison not to annul a bankruptcy in proceedings for review under s.104 of the Federal Magistrates Act where his Honour had found that the trustee had been given sufficient notice (by a letter from the bankrupt’s solicitor sent two weeks after service of the sequestration order) and that the bankrupt disputed his bankrupt status and intended to make an application to the Court.  On this basis it was said to be “unfair” to burden the bankrupt with the administration expenses which would have resulted from an annulment order (see Jacobson at [82])   In such circumstances, as Weinberg J stated in Kryiackou v Shield Mercantile Pty Ltd (No.2) [2004] FCA 1338 at [42]:

   “… a trustee who administers a bankrupt estate in the knowledge that the bankrupt is challenging the validity of the sequestration order, must exercise caution when incurring expenses while the status of the bankrupt remains uncertain.”

3. The same may be said in this case.  The sequestration order was made on 7 December 2006.  The bankrupt’s solicitor served the application for review, notice of appearance and notice of intention to oppose the application or petition on the trustee by letter of 21 December 2006.  That letter not only drew the trustee’s attention to the application, it also asked the trustee “We request that you do not do any further work in this matter”. 

4. In this case after an initial advice as to expenses, there was (despite the trustee being aware of the review application) a considerable increase in the trustee’s charges, the need for which (despite the trustee’s awareness of the review proceedings) has not been fully explained (although calculations by reference to time charged and disbursements are before the Court).  The claimed remuneration increased from $3,500 on 13 February 2007 to $17,498.84 to “finalisation” according to the trustee’s affidavit evidence, in circumstances where the debt that founded the petition was a relatively small debt of $9,048.03, the only other liabilities identified by the trustee were a liability of $6,913.15 to the Deputy Commissioner of Taxation and a mortgage secured over a significant interest in real property (over which the trustee placed a caveat), where the sequestration order was made in the absence of the bankrupt and where the trustee was on early notice of the review application and a limited amount appears to have been done in the administration of the estate. 

5. Some of these charges may relate to preparation of the report for the court.  Some may reflect legal costs in these proceedings.  The issue of the costs of these proceedings is, however, as Lander J put it in Pattison at [236] “another issue” distinct from the trustee’s remuneration and expenses.  It is discussed further below.  It is not apparent, however, in relation to the circumstances in which the claimed expenses have been incurred that it can be said that the administration of the estate has resulted in “events or transactions for which the protection of s.154 are reasonably required” (Vaucluse Hospital Pty Ltd at [76] and see Pattison at [20] per Nicholson J) such that the bankruptcy should be annulled. In this respect I note that it has been recognised by the courts that there are some cases in which, “irrespective of the outcome, an injustice may result” (Kyriackou at [35]) because of the fact that a trustee “may be out of pocket for doing no more than what he was required by statute to do” (ibid at [48]) in that if the bankruptcy is not annulled, the statutory protection of s.154 will not be available to the Trustee. As Nicholson J stated at [29] in Pattison, in such a case the Trustee is left to seek recovery of his costs, charges and expenses of the administration insofar as that is possible “at general law.” 

6. I have borne in mind that this is not a case in which the bankrupt pursued an attack on the bankruptcy notice as invalid (although this ground was included in the notice of intention to oppose), that the debt was a trade debt not a personal debt and that the circumstance may be said to involve resolution of a dispute between a debtor and a creditor. 

7. Mr Phair submitted that it was also relevant to have regard to Schedule 4A of the Bankruptcy Regulations and the need for costs incurred by a trustee to be necessary and reasonable and for the trustee to have regard to the amount of the cost likely to be incurred, compared with the value and complexity of the administration. 

8. The solicitor for the trustee submitted that at the time the sequestration order was made there was no evidence of solvency before the registrar and no attendance by the debtor.  It was acknowledged that the trustee should only be remunerated for work necessarily and properly undertaken, but pointed out that in the absence of a statement of affairs the trustee was not able to ascertain the level of indebtedness.  It was claimed that the trustee had taken a cautionary approach, having lodged a caveat on the property and undertaken some “minimal investigations”.  It was also submitted that the fact that the trustee would have to rely on rights at general law and that this would lead to further litigation and costs should be taken into account, and that the quantum of remuneration was not a matter for this Court to determine. 

9. Insofar as the solicitor for the bankrupt submitted that the issue of an annulment was not raised until the hearing on 22 March 2007.  I note that he was given, but did not take, the opportunity to make post-hearing submissions.  In any event, he was clearly alerted to the fact that the trustee sought to recover his remuneration and expenses by the submissions made on 16 March 2007.  Indeed his reliance on Vaucluse Hospital Pty Ltd v Phillips made it clear that he was aware of the possibility that the Court could make an annulment. 

10. In this case the period of administration has not been lengthy (although it exceeds the period considered in Vaucluse Hospital), the debt was for a relatively small sum which is in fact less than half the trustee’s claim for remuneration and expenses.  The debt has been paid.  The debtor is solvent and should never have been made bankrupt.  While the debtor was not present when the sequestration order was made, on his unchallenged evidence about the events of that day it cannot be said that there was disregard of court process.  There is no suggestion of a “collateral advantage to the bankrupt” (Vaucluse Hospital at [79]) by forestalling payment, although the debt was incurred in trade and the subject of a judgment. As in Vaucluse Hospital (at [80]) there is no evidence as to why the creditor did not seek to recover the judgment debt as against the bankrupt’s interest in a property (see Sarina at 165 per Deane J and Stankiewicz v Plata [2000] FCA 1185) rather than by making a solvent debtor bankrupt.

11. There is not a full explanation for the significant increase in the claimed trustee’s remuneration from the modest initial amount to the current estimate in circumstances where the trustee was on notice of the review application.  While the amount of remuneration is not a matter for the Court in these proceedings, as Weinberg J stated in Kyriackou at [42] a trustee who administers a bankrupt estate in such circumstances “must exercise caution when incurring expenses while the status of the bankruptcy remains uncertain.”

12. In all such circumstances, “a balance must be struck between the rights of the [applicant] who should never have been made bankrupt in the first place, an the [trustee] who has simply done what the Act requires him to do” (Kyriackou at [43]). Having regard to all the evidence and the factors discussed, in this case I am not satisfied that it is appropriate to make an annulment order rather than to set aside the sequestration order and dismiss the creditor’s petition.

13. That leaves however the separate question of the costs of these proceedings.  As between the debtor and the creditor, it is agreed that the debtor should meet the costs of the petitioning creditor.  It is not appropriate that the creditor meet the trustee’s costs.  The trustee’s report was necessitated by the fact of bankruptcy and the absence of relevant evidence from the debtor.  The trustee did not have legal representation on 20 February 2007.  There should be no costs for that day. 

14. There are, presumably, legal costs associated with the preparation of the trustee’s report at the request of the court in the form of an affidavit filed and served by solicitors for the trustee  in circumstances where (at that time) the bankrupt had filed no evidence of solvency or as to creditors.  The debtor should meet the legal costs of the trustee in connection with that report and the trustee’s appearance on 16 March 2007.  The subsequent adjournment was necessitated because the applicant had filed no evidence as to solvency.  However having filed his report, the trustee’s appearance on 22 March 2007 was solely for the purpose of seeking that he recover his remuneration, whatever orders the Court made.  This was and not initially expressed as an application for an annulment.  The clarification of the orders sought by the trustee meant that the eventual hearing took longer than would otherwise have been necessary. 

15. The debtor was, ultimately, successful.  In all the circumstances it is appropriate that he meet the trustee’s legal costs of these proceedings in relation to preparation of the trustee’s report and the trustee’s appearance on 16 March 2007.  There should be no other order as to the trustee’s costs of and incidental to these proceedings. 

I certify that the preceding forty-seven (47) paragraphs are a true copy of the reasons for judgment of Barnes FM

Associate: 

Date:  13 April 2007