Brown v A Whistle and Co (1979) Pty Ltd - [2011] FMCA 423

FEDERAL MAGISTRATES COURT OF AUSTRALIA

BROWN & ANOR v A WHISTLE & CO (1979) PTY LTD

[2011] FMCA 423

BANKRUPTCY – Application to review – creditor’s petition – debt agreement proposed – sequestration order made.

Bankruptcy Act 1966, ss.52, 185C(4)(c), 185F(1)(a)
Federal Magistrates Court (Bankruptcy) Rules 2006, r.7.06
Federal Magistrates Court Rules 2001, r.20.03(a)

Accounts Control Management Services Pty Ltd v Elmer [2007] FMCA 733
Ling v Enrobrook Proprietary Limited (1996) 74 FCR 19

Applicants:

JOHN BROWN AND JENNIFER BROWN

Respondent:

A WHISTLE & CO (1979) PTY LTD

File Number:

MLG 1553 of 2010

Judgment of:

Hartnett FM

Hearing date:

3 June 2011

Delivered at:

Melbourne

Delivered on:

17 June 2011

REPRESENTATION

Counsel for the Applicants:

Mr Felkel

Solicitors for the Applicants:

Merhi & Associates Barristers & Solicitors

Counsel for the Respondent:

Ms Burke

Solicitors for the Respondent:

Rothwell Lawyers Pty Ltd

ORDERS

The applicants have leave to amend the petition by dating it as

10 November 2010.
Re-verification and re-service be dispensed with.
The application for review filed 8 March 2011 is dismissed and the respondent’s costs be taxed and paid from the estates of the respondent debtors in accordance with the Bankruptcy Act 1966.
The Court affirms the orders made by Registrar Pringle on 25 January 2011.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA
AT MELBOURNE

MLG 1553 of 2010

JOHN BROWN AND JENNIFER BROWN

Applicants

And

A WHISTLE & CO (1979) PTY LTD

Respondent

REASONS FOR JUDGMENT

Before the Court is an application for review by John and Jennifer Brown, filed 8 March 2011. On 3 June 2011, the Court made an order by consent that there is leave to the applicants to file an application for review out of time.
Mr and Mrs Brown seek that the orders of Registrar Pringle made

25 January 2011 be set aside. Those orders are as follows:
(1)The applicant have leave to amend the petition by dating it as 10 November 2010.
(2)Re-verification and re-service be dispensed with.
(3)Sequestration orders be made against the estates of JOHN BROWN and JENNIFER BROWN.
(4)The applicant’s costs be taxed and paid from the estates of the respondent debtors in accordance with the Bankruptcy Act 1966.
(5) The Court noted that the date of the act of bankruptcy in respect of both respondents was 1 November 2010. The Court further noted that a consent to act as trustee had been signed by Timothy Mark Shuttleworth Holden.
Orders (1) and (2) of the orders made 25 January 2011 were sought on the hearing of this application and no objection was raised with respect thereto. Accordingly, the Court shall, on this application, make orders to include:
(1)the applicants have leave to amend the petition by dating it as

10 November 2010; and
(2) re-verification and re-service be dispensed with.
Ultimately, the Court on a hearing de novo of the Creditor’s Petition dismisses the application of Mr and Mrs Brown, and the effect of an order dismissing that application and affirming the earlier orders is that the sequestration orders made against the estates of John Brown and Jennifer Brown on 25 January 2011 shall remain in place, as will the costs order as set out in the order of 25 January 2011. The respondent to the application before me sought, in addition to dismissal of Mr and Mrs Brown’s application for review, a costs order in favour of the respondent to the application for review on an indemnity basis.

I decline to make such an order but will order that costs follow the event in the usual course.
Leave was granted in the proceedings to the respondent to the application for review to file an affidavit of search and an affidavit of debt. Those affidavits were relied upon, as is necessary when presenting a creditor’s petition, and pursuant to s.52 of the Bankruptcy Act 1966 (‘the Act’). The affidavit of search was affirmed by

Mr Bradley Littlejohn on 3 June 2011 and the affidavit of debt was sworn by Mr Grant Burchell on 2 June 2011. The applicants, Mr and Mrs Brown, relied upon affidavits sworn by Mr John Brown on

21 February 2011, 14 March 2011 and 31 May 2011. The respondent to the application for review relied upon an affidavit of Bradley James Littlejohn, sworn 31 May 2011 and filed 1 June 2011.
On 30 August 2010, A Whistle & Co (1979) Pty Ltd obtained judgment by default against John and Jennifer Brown in the Magistrates’ Court of Victoria. Judgment was in the sum of $18,601.16. On 15 September 2010, John Brown applied for a judgment instalment order and filed and served a statement of financial affairs. On 11 October 2010,

A Whistle & Co (1979) Pty Ltd served a bankruptcy notice on

John Brown and Jennifer Brown, being two bankruptcy notices and with each of Mr and Mrs Brown being served. Mr and Mrs Brown failed to comply with the bankruptcy notices, and accordingly, an act of bankruptcy was committed on 1 November 2010.
On 10 November 2010, a creditor’s petition was presented by

A Whistle & Co (1979) Pty Ltd, seeking a sequestration order against the estates of the respondents. On 15 November 2010, the creditor’s petition, trustee’s consent to act, and affidavits verifying the creditor’s petition and service of the bankruptcy notice were all served on Mr and Mrs Brown. On 25 January 2011, Registrar Pringle ordered that a sequestration order be made against the estates of John Brown and Jennifer Brown. The order was made in the absence of John and Jennifer Brown.
The person against whom a sequestration order is made can apply to the Court for review of the order pursuant to r.7.06 of the Federal Magistrates Court (Bankruptcy) Rules 2006. The review is by way of a hearing de novo (Federal Magistrates Court Rules 2001, r.20.03(a)). On the hearing of this application the petitioning creditor must prove, (a) the matters stated in the petition, (b) service of the petition, and (c) that the debt relied on is still owing. The Court has a discretion to make a sequestration order.
The petitioning creditor’s documents are in order and the Court is satisfied as to the matters stated in the petition and service of the petition. The Court is further satisfied, on the affidavit evidence filed by the petitioning creditor, that the debt is still owing.
No debt agreement has been ratified by the creditors of the respondent. Indeed no proposed debt agreement has been accepted by ITSA and distributed to creditors for consideration. The petitioning creditor has instructed its solicitors that it would not vote in favour of a debt agreement proposal and the petitioning creditor holds approximately

44 per cent of the unsecured debt. The petitioning creditor seeks to have the sequestration order remain and the applicant’s application for review dismissed. The question arises whether the foreshadowing of the filing of a proposal by the respondent precludes the making of a sequestration order.
The Court has not been persuaded by Mr and Mrs Brown that a sequestration order should not be made. Mr and Mrs Brown have failed to file material setting out any proposed debt agreement let alone one which could be found to be in the best interests of the creditors and likely to be accepted. Even were a debt agreement proposal to be pending – which it is not – and where it has not been accepted by the creditors, there is nothing to stop a creditor from presenting a petition against the debtor. Such application does not amount to enforcement of a remedy against the estate of the debtor within the meaning of s.185F(1)(a) of the Act (Accounts Control Management Services Pty Ltd v Elmer [2007] FMCA 733 per Wilson FM at para 9).
The Court finds that the creditor’s petition is regular. The Court further finds that it is not disputed by Mr and Mrs Brown that they are insolvent. The Court has no evidence before it as to whether the proposed debt agreement proposed by Mr and Mrs Brown would be accepted by ITSA and distributed to creditors for consideration.

The evidence the Court does have before it, and as contained in the affidavit of Mr Littlejohn, is that the respondent to the application for review holds 44.31 per cent of the unsecured debts. Mr Littlejohn is instructed that the respondent will oppose any Part IX debt agreement proposed. Accordingly, even if all other creditors voted in favour of the proposed proposal, the proposal would be defeated as it would not have majority in value being less than 75 per cent.
In opposing an application for a sequestration order, it is the debtor, or debtors as in this case, who have the onus of proving there is sufficient cause for a sequestration order not to be made (Ling v Enrobrook Proprietary Limited (1996) 74 FCR 19). Mr and Mrs Brown have not adduced any evidence before the Court to explain why it is that Debt Busters did not complete a debt agreement proposal between mid-October 2010 when first instructed, and late December 2010, when the flood crisis in Queensland began, and being a period of over two months. Furthermore, the evidence that Debt Busters was affected by the Queensland floods, as put before the Court in Mr Brown’s affidavits, is unsupported hearsay evidence and not persuasive.
Further, the terms of the proposed debt agreement are unknown.
Mr and Mrs Brown have not provided evidence to the Court of a proposed debt agreement. Accordingly, they have not sought to persuade the Court that any proposed debt agreement is in the best interests of the creditors, nor have they sought to demonstrate to the Court that despite the petitioning creditor’s opposition the debt proposal would be likely to be accepted. Mr and Mrs Brown’s evidence before the Court is that Debt Busters advised them that it was not necessary to attend Court on
25 January 2011. There is no evidence to that effect from any person in the employment of Debt Busters.
Even if that was the case, Mr and Mrs Brown were aware of the hearing date. In any event, the advice given (if it was) from

Debt Busters was incorrect. There is no automatic stay on a creditor’s petition upon the lodging of a proposed debt agreement with ITSA, or upon its accepting a proposed debt agreement for processing, or even if a debt agreement is under consideration by creditors. Mr Littlejohn filed an affidavit dated 24 January 2011 stating that he had searched the National Personal Insolvency Index on that day and found no debt agreement on the index. Mr and Mrs Brown blame ITSA for not issuing estate numbers before 25 January 2011, but there is no evidence before the Court from ITSA.
A sequestration order should be made against the estates of Mr and
Mrs Brown. They have not established any sufficient cause which exists to persuade the Court to exercise its discretion in their favour. They rely on their intention to propose a debt agreement to their creditors but do not put any proposed agreement before the Court, nor is there any evidence to indicate that any such proposed debt agreement is likely to succeed nor is there conclusive evidence that either of them would satisfy the provisions of s.185C(4) of the Act. Even if there were such evidence before the Court, a petitioning creditor is only prevented from presenting a petition once a debt agreement has been accepted by creditors, and is in force. That is not the case in these proceedings.
The application for review is dismissed.

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

Associate:

Date: 17 June 2011