Byczko v Sheahan - [2001] FMCA 120

FEDERAL MAGISTRATES COURT OF AUSTRALIA

BYCZKO v SHEAHAN [2001] FMCA 120

BANKRUPTCY – Application for annulment under s 153B – no evidence that petition ought not to have been presented or accepted – exercise of discretion not to grant annulment where affairs are complex and claims on the estate involved – application refused.

Bankruptcy Act1966 (Cth) ss 153 A, 153B,

Cachia v Hanes (1994) 120 ALR 385

McDonald, Henry and Meek, Australian Bankruptcy Law and Practice.

Applicant:

JAN CZESLAW BYCZKO

Respondent:

JOHN SHEAHAN

File No:

AZ 243 of 2001

Delivered on:

4 December 2001

Delivered at:

Adelaide

Hearing Date:

4 December 2001

Judgment of:

Raphael FM

REPRESENTATION

For the Applicant:

Mr J Byczko

For the Respondent:

Mr D Partington

Mr Sheahan

ORDERS

Application dismissed.
Costs of the Child Support Agency to be paid out of the estate of the bankrupt.

FEDERAL MAGISTRATES COURT OF AUSTRALIA AT ADELAIDE

AZ 243 of 2001

JAN CZESLAW BYCZKO

Applicant

And

JOHN SHEAHAN

Respondent

REASONS FOR JUDGMENT

In this matter the bankrupt, JAN CZESLAW BYCZKO, makes an application under section 153B of the Bankruptcy Act1966 for the annulment of his bankruptcy.
Mr Byczko was made bankrupt on 12 March 2001 on his own petition. Section 153B is in the following form:
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 have been accepted by the official receiver, the court may make an order annulling the bankruptcy.
Mr Byczko has filed an affidavit to which he has annexed a considerable volume of documentation and has spoken on his own behalf at some considerable length. It should be stated that this matter was originally set down for hearing on 10 December, but the court requested that the matter be heard today, 4 December, as this was the date upon which I was circuiting to Adelaide and hearing bankruptcy matters. Mr Byczko agreed to that course of action, although he now says that if he had been given until 10 December some further evidence would have been filed.
The argument put by Mr Byczko in support of his application appears to revolve around his solvency at the time that the petition was presented. Mr Byczko is the owner of at least two properties – one in Croydon Park and one in Plympton – and he states that had those properties been sold he could have paid off all his creditors. That is probably correct; the only problem is that at the time Mr Byczko placed himself into bankruptcy he had taken part in a number of transactions relating to those properties which effectively put those properties out of his control.
The details of those transactions are contained in the affidavit of Ian Russell Lock sworn on 14 November 2001 and filed in these proceedings. Eventually the trustee had those transactions set aside in the Federal Court. The setting aside orders were made by consent on 22 August 2001 and details of those orders are also contained in the affidavit of Mr Lock. Effectively, what Mr Byczko is arguing is that I should ignore the transactions which the trustee set aside for the purposes of considering whether or not, at the time he voluntarily told the public trustee that he was insolvent, he was not insolvent.
Mr Byczko also makes a number of other complaints, and there is an additional factor to be taken into consideration in relation to his financial position. It appears that in or about October 1999 Fiona Michelle Wittwer issued proceedings in the District Court of South Australia against Mr Byczko seeking a division of property pursuant to the De Facto Relationships Act 1996. Those proceedings have now been completed, but judgment is awaited. I understand from submissions made by Mr Byczko from the bar table that he believes he has a counterclaim against Ms Wittwer in the sum of approximately $40,000 which he states he was not permitted to pursue by his trustee. I do not know what the correct situation with regard to that is, but it does not seem to me to take anything away from the existence of contingent liability to Ms Wittwer which may well be crystallised fairly soon, even if Mr Byczko exercises his ordinary rights of appeal against an unfavourable judgment.
The complaints which Mr Byczko makes are against his trustee, in the manner in which he alleges the trustee has conducted the stewardship of Mr Byczko's estate. Mr Sheahan, who is the trustee, appears here himself, although he relies on the affidavit of his partner, Mr Lock, for much of the information which he has given to the court. Some of the matters raised by Mr Byczko were debated, but they were not debated in an appropriate manner and any debate was only held in order to ensure that Mr Byczko had the opportunity to raise those matters upon which he felt some concern. I explained to him that if he had a genuine cause for concern about Mr Sheahan and the manner in which he had conducted the trusteeship, then there were avenues open to him to deal with that and that proper applications supported by proper evidence would have to be made.
During the course of the hearing I was informed that the Croydon Park property had been sold. There was some debate as to whether or not it was sold in defiance of a court order. I make no finding on that; I have not sufficient evidence before me to do so, but I note the very strong denial of any breach of the orders by Mr Sheahan. The property has been sold and it realised approximately $203,503. After the expenses of sale were taken out, the sum of $176,367.83 was transferred to Mr Sheahan in his capacity as trustee. Mr Sheahan had sold the property in his capacity as receiver of the property to which he had been appointed by the Federal Court. In his capacity as trustee, Mr Sheahan then used that money to pay certain expenses, including his own remuneration and solicitor's costs, in an amount which totalled $149,161.67, leaving an available balance of $27,206.16; unfortunately, that amount is not sufficient to pay off the known creditors of Mr Byczko.
There is some considerable dispute between Mr Byczko and the trustee about these creditors, although in fact the dispute is not really between Mr Byczko and his trustee but between Mr Byczko and his creditors. Mr Byczko maintains that some of the creditors are not proper creditors, and the trustee advises the court that no proofs of debt have yet been accepted and therefore there is an opportunity for Mr Byczko to provide sufficient assistance to the trustee to enable him to reject proofs, if that is the appropriate course of action. Certainly the amount of money free in the estate is suspected to be insufficient to pay not only the creditors who have advised the trustee of their existence but also Ms Wittwer, whose claim, as I understand it, may exceed $100,000.
I have gone into some detail about the current situation regarding the estate because it occurred to me during the course of the proceedings that maybe Mr Byczko might qualify for an annulment under section 153A. He may well do so at sometime in the future when the Plympton property has been sold and the amount of the debt to the creditors is known, but at the moment that does not seem to be a proposition which can be speedily effected. I am told that the property is for sale on 19 December and, as I said before, the judgment in the De Facto Relationships Act case could be handed down at any time.
At the end of the hearing Mr Byczko asked for an interim injunction to prevent the sale of the property; that is an application of some considerable seriousness and it is not one that I am prepared to deal with on the run, as it were, without proper evidence or proper time for consideration, or a proper application being made. Mr Byczko is at liberty to make such an application at any time, although of course he must realise that if an injunction is sought, then urgency must be established.
In considering whether or not to grant an annulment under section 153B the court must look at the circumstances in which the petition was presented and accepted, and that is the circumstances at the time and not circumstances that exist sometime later as a result of the actions of the trustee. When Mr Byczko submitted his petition he claimed a deficiency of approximately $33,763. There was no doubt that it was on that basis that the public trustee accepted the petition.
Nothing I have heard today would persuade me that the petition ought not to have been accepted, and to the extent that I might have been persuaded that it should not have been presented, the only reason that it should not have been presented is because it seems to have been presented for motives which may have more to do with the financial position of Mr Byczko than the protection of his creditors. He either believed he had a deficiency or he believed that he was in fact a reasonably well-off person, a possessor of two properties worth over one-half million dollars; if the former, there was nothing incorrect in the presentation or the acceptance of that petition and, if the latter, then it would seem to me that Mr Byczko is seeking to rely on his own dishonesty in support of his application. The court has a discretion in any event as to whether or not to make an order under this section.
The cases on the matter are cited at some length in pages 6004 and following in McDonald, Henry and Meek, Australian Bankruptcy Law and Practice. The question of the exercise of discretion, it seems to me, does not arise in this case because I have not found that the petition ought not to have been presented or ought not to have been accepted. But if I am wrong in that, then I would not exercise my discretion in favour of the applicant. I believe that his affairs are sufficiently complex, that the various claims on his estate are sufficiently involved, to continue the bankruptcy for the time being.
That being said, however, there is no doubt that if the Plympton property is sold for approximately $300,000, as suggested, that all creditors, even Ms Wittwer, will be able to be paid out, and therefore at the end of the day Mr Byczko will be able to obtain an annulment under section 153A. What is important is that this state of affairs, which is expected to occur by all involved, occurs as soon as possible and, in addition, the concerns that Mr Byczko has about the conduct of the trustee are laid to rest as early as possible.
The trustee has given an undertaking to the court to provide Mr Byczko with information that he requests about the costs and expenses involved in the administration of the estate, and that is an excellent starting point. Mr Sheahan has also, I believe, agreed to meet with Mr Byczko and discuss with him any matters of complaint that he has; this is to be encouraged. It is in the interests of both Mr Byczko and Mr Sheahan and, of course, all the creditors, if this estate is wound up positively, by which I mean in credit, as soon as possible. Mr Byczko has asked that the trustee be requested to negotiate with the creditors. I have no doubt that a trustee of the experience of Mr Sheahan will do that and will listen carefully to what Mr Byczko has to say about the validity of their debts. In the end, of course, it is for the trustee to make up his own mind whether to reject or to accept proof of debt, and that is not something upon which the court should make any further comment. In those circumstances,

I would dismiss the application.
Neither party is legally represented. I think Mr Sheahan's time for coming here will no doubt form part of his costs in the administration, but I will not make any specific order as to costs because that is not appropriate, see Cachia v Hanes (1994) 120 ALR 385. Mr Partington has appeared in this matter on behalf of the Child Support Agency, a creditor initially for $3,500, but possibly for $8,500, today. He was notified of this application by Mr Byczko in accordance with the requirements of the rules. I order that Mr Partington's costs be paid out of the estate.

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

Associate: Denise Attard

Date: 6 December 2001