Boatwright v Boyded Industries Pty Ltd T/As Heartland Parts
[2016] FCCA 3304
•14 November 2016
FEDERAL CIRCUIT COURT OF AUSTRALIA
| BOATWRIGHT v BOYDED INDUSTRIES PTY LTD T/AS HEARTLAND PARTS & ANOR | [2016] FCCA 3304 |
| Catchwords: BANKRUPTCY – Annulment application – debt owed by petitioning creditor paid – bankrupt solvent at time of sequestration order – no opposition to annulment application. |
| Legislation: Bankruptcy Act 1966, s.153B |
| Cases cited: Boles v Official Trustee in Bankruptcy (2001) 183 ALR 239; [2001] FCA 639 Bulic v Commonwealth Bank of Australia Ltd [2007] FCA 307 Francis v Eggleston Mitchell Lawyers Pty Ltd [2014] FCAFC 18 Yang v L & H Group (a limited Partnership) [2015] FCA 932 |
| Applicant: | PAUL MICHAEL BOATWRIGHT |
| First Respondent: | BOYDED INDUSTRIES PTY LTD T/AS HEARTLAND PARTS ACN 000 092 464 |
| Second Respondent: | OFFICIAL RECEIVER |
| File Number: | SYG 2648 of 2016 |
| Judgment of: | Judge Barnes |
| Hearing date: | 14 November 2016 |
| Delivered at: | Sydney |
| Delivered on: | 14 November 2016 |
REPRESENTATION
| Counsel for the Applicant: | Mr De Buse |
| Solicitors for the Applicant: | Kazi Portolesi Lawyers |
| The Respondents: | No appearance |
ORDERS
The bankruptcy of the Applicant is annulled pursuant to section 153B of the Bankruptcy Act 1966 (Cth).
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT SYDNEY |
SYG 2648 of 2016
| PAUL MICHAEL BOATWRIGHT |
Applicant
And
| BOYDED INDUSTRIES PTY LTD T/AS HEARTLAND PARTS ACN 000 092 464 |
First Respondent
| OFFICIAL RECEIVER |
Second Respondent
REASONS FOR JUDGMENT
On 6 September 2016, a registrar of this court made a sequestration order against the estate of Mr Boatwright and the estate of Stuart Andrew Sheldon in circumstances where neither Mr Boatwright nor Mr Sheldon appeared at the hearing. The debt that formed the basis for the bankruptcy notice and was relied on in the creditor’s petition was said to relate to a guarantee given by Mr Boatwright and Mr Sheldon based on a default judgment of the Local Court dated 12 May 2016 for a debt of $16,815.72 against Milperra Road Smash Repairs Pty Ltd (Milperra). Mr Boatwright and Mr Sheldon are the directors of Milperra.
Mr Boatwright and Mr Sheldon each filed an annulment application on 29 September 2016. As requested, I heard the applications together on 14 November 2016. I made orders on that day annulling the bankruptcy of each of Mr Boatwright and Mr Sheldon pursuant to s.153B of the Bankruptcy Act 1966 (Cth). I indicated that I would provide reasons for my order at a later date. These are my reasons in relation to Mr Boatwright’s application.
Mr Boatwright relied on affidavit evidence from himself and his solicitor and documents tendered for the purposes of both matters.
The evidence is that after Mr Boatwright received a letter from the Australian Financial Security Authority (AFSA) dated 13 September 2016 advising him that he had been made bankrupt, by arrangement with the petitioning creditor’s debt collection agents (Macquarie Collections), he transferred the sum of $23,926.74 (the amount of the debt then due to Boyded Industries Pty Ltd, interest and fees) to Macquarie Collections. A receipt was issued dated 19 September 2016.
On 22 September 2016, Macquarie Collections notified Mr Boatwright and Mr Sheldon of receipt of the payment, that they had notified AFSA that the payment had been made and that Boyded Industries Pty Ltd (the petitioning creditor) would consent to any application to annul the bankruptcies.
After the annulment applications were filed, the petitioning creditor’s consent was confirmed by email from Macquarie Collections to the solicitor for Mr Boatwright and Mr Sheldon of 13 November 2016. The petitioning creditor played no part in these proceedings.
In addition, Mr Boatwright’s trustee in bankruptcy (the Official Trustee in Bankruptcy) advised his solicitors that provided a debt of $290,879 in respect of director’s penalties in relation to Milperra that was owed jointly and severally by Mr Boatwright and Mr Sheldon to the Deputy Commissioner of Taxation was paid in full (with non-vested funds/assets), the Official Trustee would not object to the annulment of the bankruptcy under s.153B of the Act.
That debt reflected director’s penalty notices in respect of PAYG withholding tax. It had been the subject of a payment arrangement towards which payments were made. However the Deputy Commissioner of Taxation lodged a proof of debt in the amount in question.
On 8 November 2016 the debt to the ATO was paid in full by Mr Sheldon’s wife from an inheritance she had received from the estate of her late mother. In evidence is a copy of a receipt from the ATO. There is also evidence that on 21 October 2016 “fees” owed to AFSA in respect of the trustee’s expenses of administration were paid.
The Official Trustee in Bankruptcy was aware of the scheduled hearing of the annulment application but did not appear and did not object to an annulment.
In these circumstances and in the absence of any appearance by or on behalf of any supporting creditor, Mr Boatwright sought that his bankruptcy be annulled. His counsel relied on a number of matters in support of a contention that the sequestration order ought not to have been made. In essence it was contended that he was solvent in the sense that he was able to pay his debts at the time of the sequestration order.
Section 153B(1) of the Bankruptcy Act provides that:
If the court is satisfied that a sequestration order ought not to have been made…the court may make an order annulling the bankruptcy.
The principles applicable to an annulment application under s.153B(1) are well-established (see Bulic v Commonwealth Bank of Australia Ltd [2007] FCA 307 and Francis v Eggleston Mitchell Lawyers Pty Ltd [2014] FCAFC 18). The applicant for annulment bears a heavy burden and is required to place before the court all relevant material concerning his financial affairs. In determining whether a sequestration order “ought not to have been made”, the court is not confined to a consideration of whether the order should have been made on the facts known to the court at the time at which it was made. Rather, it must take into account other facts existing at the time of the sequestration order, even if those facts were not before the court at the time at which the sequestration order was made. Facts that have occurred after the time of the sequestration order are not relevant in considering whether the sequestration order ought not to have been made, but are relevant to the exercise of the court’s discretion to annul if that condition is met.
In determining whether the sequestration order ought not to have been made, the issue for the court is whether, on the facts at the time which are now known to have existed, the court making the sequestration order would have been bound not to make the sequestration order.
I am satisfied on the evidence before the court that the sequestration order ought not to have been made in relation to Mr Boatwright. The judgment that formed the basis for the creditor’s position was a default judgment. It was entered against Milperra, Mr Boatwright and Mr Sheldon. The claim relied on as the basis for such judgment listed those three defendants. However, as counsel for Mr Boatwright pointed out, within the statement of claim filed in the Local Court proceedings there was no mention of Mr Sheldon and no claim against him. Rather, payment was sought from Milperra for goods sold to it on credit by the plaintiff and orders against Mr Boatwright pursuant to a guarantee.
Such an irregularity or deficiency in pleading in relation to Mr Sheldon’s liability may not be sufficient to warrant dismissing a creditor’s petition in relation to Mr Boatwright or to establish that the sequestration order ought not to have been made against him as it appears to have been conceded that there was in fact a debt due from Mr Boatwright. However it has not been necessary to determine this issue because I am satisfied, on the evidence now before the court, that Mr Boatwright’s financial circumstances at the time of the sequestration order were such that he could and would have been able to demonstrate that he was able to pay his debts (see Re Sarina; Ex parte Wollondilly Shire Council (1980) 30 ALR 266 at 600) such that the sequestration order ought not to have been made. I had regard to these circumstances not only as support for the proposition that the court could be satisfied that the sequestration order ought not to have been made, but also as relevant to the exercise of the discretion.
Mr Boatwright has provided a detailed explanation of his past and present financial circumstances in particular in his affidavit of 10 November 2016.
Mr Boatwright’s evidence is that he has a 50% interest in a property valued, according to a market appraisal, in an amount of $850,000-$900,000 and seven motor vehicles (including five pre-war Austin 7 vehicles) with total assets valued at $650,000. In addition to the unsecured debts that have been paid since the time of his bankruptcy (as explained below) he disclosed a mortgage and two secured personal loans from Westpac in relation to which he estimated that his 50% share of the debt was in the order of $215,808.11.
I note that even if 100% of his debts at the time of the sequestration order were to be taken into account, on the basis that the liabilities were joint and several, Mr Boatwright’s assets still exceeded his liabilities.
I also note that one of the personal loans is a line of credit for $370,000 of which less than $50,000 has been drawn down, leaving a significant amount available to be drawn down.
After the sequestration order was brought to his attention by Mr Sheldon, Mr Boatwright took prompt action to pay the total outstanding amount of $23,976.24 to the petitioning creditor’s debt collection agency, to make enquiries as to annulling the bankruptcy and to commence proceedings.
Since that time Mr Boatwright has attended to payment of his outstanding credit card debt of $9,000 and the trustee’s expenses of over $4,700. The obligation to the ATO of over $290,879 has been met by Mr Sheldon’s wife from an inheritance she received from her late mother’s estate.
It is apparent that Mr Boatwright’s assets included readily available assets which exceeded his liabilities by a significant amount.
Mr Boatwright is, as is Mr Sheldon, a director of Milperra which has been operating since 1995 and repairs damaged vehicles. Most of the work is insurance-related. It employs approximately 20 staff members.
Neither the mortgagee nor any other creditor appeared at the hearing. I am satisfied that at the time of the sequestration order, Mr Boatwright had sufficient assets or resources, including those that could be readily realised, to meet his liabilities such as to satisfy me that he was able to pay his debts as and when they fell due. I am satisfied that the sequestration order ought not to be have been made.
The factors the court may consider in relation to the exercise of its discretion, include any failure by the applicant to attend the hearing at which the sequestration order was made or to oppose such an order and the explanation for such conduct; any delay in seeking annulment; any failure by the applicant to put evidence before the court prior to the sequestration order and the explanation for that failure; whether or not the applicant is solvent; whether or not the applicant has made full disclosure of his financial affairs; the rights and interest of creditors; the applicant’s preparedness to pay any outstanding debts; the conduct of the applicant during the period of bankruptcy, including co-operation with the trustee in bankruptcy; payment of any costs and expenses sought by the trustee; the steps taken by the trustee in administration of the estate; and, generally, whether it is fair or just to the applicant and the creditors to grant the annulment and the public interest (see Boles v Official Trustee in Bankruptcy (2001) 183 ALR 239; [2001] FCA 639 and the more recent discussion of the relevant factors in Francis v Eggleston Mitchell and Yang v L & H Group (a limited Partnership) [2015] FCA 932).
Mr Boatwright relied on the payment of his unsecured creditors, including the petitioning creditor, and the fact that his trustee in bankruptcy did not object to the annulment application. In addition, it was submitted that the circumstances leading up to the making of the sequestration order in his absence had been explained. Mr Boatwright was responsible for managing the outgoings of the Milperra business. He explained that a previous arrangement for monthly collection of amounts owed to Boyded Industries Pty Ltd had ceased; that the bookkeeper employed by Milperra with responsibility for ensuring all invoices were paid and the books were up to date was experiencing personal problems at the relevant time; and that he was affected by depression (as explained in a letter from his medical practitioner).
Mr Boatwright’s uncontested evidence was that while he recalled receiving the statement of claim, he took no relevant action because of the numerous matters he was dealing with in the business at the time, involving Workcover, Council and employee issues in circumstances where he had been suffering from depression for some 10 to 15 years and was under the treatment of a medical practitioner. He also recalled receiving the bankruptcy notice and the creditor’s petition and accompanying documents, but referred to a number of personal issues arising at that time. He was not aware that the matter had been listed for hearing but, in any event, did not attend the hearing due to health and employee issues. He had his attention drawn to the sequestration order by Mr Sheldon. He thereafter took prompt action to ensure that the debt to the petitioning creditor was paid and, in addition, attended to payment of an outstanding credit card debt and the trustee’s expenses and ensured that the debt owed to the Australian Taxation Office was paid.
I have had regard to all the circumstances referred to above. In particular I note that since Mr Boatwright was made bankrupt the debt owed to the petitioning creditor, his credit card debt, the trustee’s expenses and the debt to the ATO have all been paid, leaving Mr Boatwright’s only debts secured over his property. Mr Boatwright is solvent at present. He has made full disclosure of his financial affairs, including providing a statement of affairs to his trustee in bankruptcy. There was no opposition to an annulment.
For these reasons I made an order annulling his bankruptcy.
I certify that the preceding thirty (30) paragraphs are a true copy of the reasons for judgment of Judge Barnes
Associate:
Date: 20 December 2016
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