Catterick v OWNERS CORPORATION PS302189T and Catterick v OWNERS CORPORATION PS302189T and Anor
[2011] FMCA 694
•4 July 2011
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| CATTERICK v OWNERS CORPORATION PS302189T AND CATTERICK V OWNERS CORPORATION PS302189T & ANOR | [2011] FMCA 694 |
| BANKRUPTCY – Whether sequestration order should be set aside – whether the bankruptcy should be annulled. |
| Bankruptcy Act 1966 |
| Begetis v Temperzone Australia Pty Ltd (2007) FMCA 498 Bell Group NV (in liq) v Aspinall (1998) 19 WAR 561 Bulic v Commonwealth Bank of Australia [2007] FCA 307 Commonwealth Bank of Australia v Oswal (2011) WASC 84 Heinrich v Commonwealth Bank of Australia [2003] FCAFC 315 Kyriackou v Shield Mercantile Pty Ltd (No. 2) [2004] FCA 1338 Ozer v Australian Liquor Marketers Pty Ltd [2000] FCA 291 Ozer v Australian Liquor Marketers Pty Ltd[2001] FCA 1197 Pattison v Hadjimouratis (2006) 236 ALR 1; [2006] FCAFC 153 Re Dittford; Ex parte Deputy Commissioner of Taxation (1988) 19 FCR 347 Re Williams (1968) 13 FLR 10 Sarina, Re; Ex parte Wollondilly Shire Council (1980) 32 ALR 596 Stankiewicz v Plata [2000] FCA 1185 Vaucluse Hospital Pty Ltd v Phillips [2006] FMCA 44 |
| Applicant: | STEVEN ANTHONY CATTERICK |
| First Respondent: | OWNERS CORPORATION PS302189T |
| File Number: | MLG 1511 of 2010 |
| Applicant: | STEVEN ANTHONY CATTERICK |
| First Respondent: | OWNERS CORPORATION PS302189T |
| Second Respondent: | D.C. QUINN IN HIS CAPACITY AS TRUSTEE OF THE BANKRUPTY ESTATE OF STEVEN ANTHONY CATTERICK |
| File Number: | MLG 479 of 2011 |
| Judgment of: | Whelan FM |
| Hearing dates: | 24 May 2011, 8 June 2011 |
| Date of Last Submission: | 8 June 2011 |
| Delivered at: | Melbourne |
| Delivered on: | 4 July 2011 |
REPRESENTATION
| File Number: | MLG 1511 of 2010 |
| Counsel for the Applicant: | Mr Watts |
| Solicitors for the Applicant: | Nelson Lawyers |
| Counsel for the Respondent: | Mr Galvin |
| Solicitors for the Respondent: | Wisewould Mahony |
| File Number: | MLG 479 of 2011 |
| Counsel for the Applicant: | Mr Watts |
| Solicitors for the Applicant: | Nelson Lawyers |
| Counsel for the First Respondent: | Mr Galvin |
| Solicitors for the First Respondent: | Wisewould Mahony |
| Counsel for the Second Respondent: | Mr Agardy |
| Solicitors for the Second Respondent: | LFS Legal |
ORDERS
The sequestration order made by Registrar Hetyey on 1 March 2011 be set aside.
The Respondent Petitioning Creditor’s petition be dismissed.
The Applicant pay the costs of the Trustee in Bankruptcy of and incidental to the preparation of the report filed in accordance with directions made on 24 May 2011 and the legal costs of these proceedings as agreed and in the absence of agreement as taxed in accordance with the Federal Court Rules2011 (Cth).
The Applicant pay the legal costs of the Petitioning Creditor and LFS Legal of these proceedings as agreed and in the absence of agreement as taxed in accordance with the Federal Court Rules2011 (Cth).
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT MELBOURNE |
MLG 1511 of 2010
| STEVEN ANTHONY CATTERICK |
Applicant
And
| OWNERS CORPORATION PS302189T |
Respondent
MLG 479 of 2011
| STEVEN ANTHONY CATTERICK |
Applicant
And
| OWNERS CORPORATION PS302189T |
First Respondent
| D.C. QUINN IN HIS CAPACITY AS TRUSTEE OF THE BANKRUPTY ESTATE OF STEVEN ANTHONY CATTERICK |
Second Respondent
REASONS FOR JUDGMENT
(Revised from transcript)
Introduction
These are applications by the Applicant, Mr STEVEN ANTHONY CATTERICK (“the Applicant”), for review of the decision of Registrar Hetyey to make a sequestration order on 1 March 2011 (MLG1511/2010) and, in the alternative, for an order that his bankruptcy be annulled (MLG479/2011).
On 8 April 2011, the Applicant made an application to the Court for an order to annul the bankruptcy which was the subject of a sequestration order made by Registrar Hetyey on 1 March 2011. On 27 April 2011, leave was granted to the Applicant to file an application for an order to review the Registrar’s decision to make the sequestration order. The Applicant has now reached terms of settlement with the petitioning creditor. The only remaining issue for the court is whether the sequestration order should be set aside or the bankruptcy annulled.
Submissions of the Applicant
The Applicant submits that he was, at the time that the sequestration order was made and at the time of the hearing, clearly solvent. He had outstanding debts but was in a position to meet those debts.
The Applicant further submits that his willingness to pay those debts is not the issue. He referred to the Court to the case of Sarina, Re;
Ex parte Wollondilly Shire Council (1980) 32 ALR 596 in particular to the following paragraph of the Full Court referring to the submissions made by Counsel for the respondent:Counsel for the respondent submitted that notwithstanding the ability of the appellant to pay his debts within the meaning of section 52(2), the court in the exercise of its discretion should make a sequestration order against the estate of the appellant. The essence of the argument was that as the applicant was able to pay the debt due to the respondent, but was unwilling to pay it, the court should make a sequestration order as a mark of its disapproval of such conduct.
In our opinion, that would not be a proper exercise of discretion on the facts of the case. This case does not fall within the ambit of the discretion conferred by section 52(2). Nor does it call for the adoption of any course except dismissal of the petition.[1]
The Applicant says that those comments are apposite to the matter before the Court today.
[1] Sarina, Re; Ex parte Wollondilly Shire Council (1980) 32 ALR 596 at paragraph 599.
In determining whether the sequestration ought not to have been made, the Court is entitled to consider not only the matters before the Court at the time the sequestration order was made, but also facts known at the hearing to have existed at the time but not before the Court making the order.[2] The Applicant clearly has a surplus of assets over liabilities.
He let his affairs slip due to ill health. He has now paid those unsecured debts and is able to service those which are secured.
[2] See Stankiewicz v Plata [2000] FCA 1185 referring to Fibbs J in Re Williams (1968) 13 FLR 10 and Re Dittford; Ex parte Deputy Commissioner of Taxation (1988) 19 FCR 347.
The Applicant submitted that in determining whether the sequestration order ought to be set aside or the bankruptcy annulled, the Court should consider first whether the sequestration order should be affirmed.
The Applicant referred the court to the decision of Barnes FM in Begetis v Temperzone Australia Pty Ltd (2007) FMCA 498, where her Honour refers to the matters which the Court should take into account in determining how the bankruptcy should be brought to an end. In that case, her Honour also referred to the judgment of Riethmuller FM in Vaucluse Hospital Pty Ltd v Phillips [2006] FMCA 44.
The Applicant submitted that the Court should give weight to the circumstances leading to the making of the sequestration order, including the nature of the substituted service order and the non-disclosure by the petitioning creditor of the prior proceedings, and the fact that the Applicant had a solicitor on record in those proceedings.
The Applicant also referred the Court to Commonwealth Bank of Australia v Oswal (2011) WASC 84, a decision of Le Miere J of the Supreme Court of Western Australia, who said, in relation to the obligation on a party in an ex parte application, that:
It is the duty of a party asking for an order without notice to the party against whom the order is sought to bring to the notice of the court all facts material to the determination of his right to that order. The applicant must bring forward all the material facts which the absent party would presumably have brought forward in his defence to the application.[3]
[3] Commonwealth Bank of Australia v Oswal (2011) WASC 84 at 6.
His Honour later on quoted, in the same paragraph, from a decision of that Court in Bell Group NV (in liq) v Aspinall (1998) 19 WAR 561, where the Court said:
It is very difficult to give a general definition of the extent of the disclosure required because each case depends so much on its own facts. It is sufficient to say that the applicant must make a full and fair disclosure of all matters within its knowledge which are material to the proceedings and which tend in favour of the other party.
The Applicant stated that the failure to disclose in this case affected the rest of the process. He also referred to the error in the Order which provided the wrong number for the proceedings.
An application to set aside a sequestration order is a hearing de novo; the Court needs to look at all the facts including facts which only became apparent after the order was made.[4]
[4] Heinrich v Commonwealth Bank of Australia [2003] FCAFC 315.
In this case, the Applicant clearly has a surplus of assets over liabilities. His tardiness in responding to the Trustee in Bankruptcy is not of such magnitude as to amount to adverse conduct of such a degree as to disentitle him to having the sequestration order set aside.[5]
[5] Ozer v Australian Liquor Marketers Pty Ltd [2000] FCA 291.
On the issue of whether the setting aside of the sequestration order was the proper course rather than annulment of the bankruptcy, the Applicant took the Court to the decision of the Full Court of the Federal Court in Pattison v Hadjimouratis (2006) 236 ALR 1; [2006] FCAFC 153; and in particular to the following paragraphs in the decision of Nicholson J, where his Honour refers to the reasoning in Kyriackou[6] and says:
The reasoning in Kyriackou reflects the position that it is open for a Federal Magistrate on determination of a review to consider the making of an order for annulment of the bankruptcy in question, rather than the setting aside of the sequestration order. If the former course is taken, the consequent operation of section 154 will bring statutory protection to the trustee’s costs, charges and expenses of the administration. However, where the circumstances are such that the sequestration order should be set aside, the discretion cannot also be exercised judicially in favour of annulment. Annulment cannot accompany dismissal of a petition and setting aside of a sequestration order. That is because once the petition is set aside there is no juridical condition of bankruptcy to attract an order of annulment.
In the present appeal, the Federal Magistrate exercised his discretion concerning the appropriate remedy, concluding that the circumstances, in which the trustee had been given sufficient notice of the debtor’s application, made it inappropriate for the debtor to be required to pay the administration expenses which would have resulted from the making of an annulment order. There was no error in the exercise of his discretion. The consequence is that this is one case in which the trustee is left to seek recovery of his costs, charges and expenses of administration at general law.[7]
[6] Kyriackou v Shield Mercantile Pty Ltd (No. 2) [2004] FCA 1338.
[7] Pattison v Hadjimouratis (2006) 236 ALR 1; [2006] FCAFC 153 at paragraphs 18 and 19.
The Applicant also referred to further paragraphs in the decision of Lander J in the same matter. The Applicant submitted that his position in this case was analogous to that of Mr Kyriackou, as cited in the matter of Kyriackou v Shield Mercantile Pty Ltd (No. 2) [2004] FCA 1338. In that case, the bankruptcy notice was invalid. This infected the whole process and resulted in the sequestration order being set aside. Weinberg J, in dealing with the trustee’s costs in that matter, said:
It would be quite wrong, in my view, to burden Mr Kyriackou, who is the successful applicant in these proceedings, with the cost of administering a bankrupt estate that should have never been made the subject of a sequestration order. Regrettably, that leaves the official trustee with no obvious and immediate recourse against either the appellant or the first respondent. It also leaves him with what might be considered to be a legitimate sense of grievance. He may be out of pocket for doing no more than what was required by the statute to do.[8]
[8] Pattison v Hadjimouratis [2006] FCAFC 153 at paragraph 17.
In this case, the Applicant is clearly solvent, the administration has been of short duration and the Trustee was on notice at an early stage that the sequestration order was challenged. The Applicant stated that there is accordingly a proper basis to set aside that order.
Submissions of the Trustees
The Trustees submitted that as officers of the Court the Trustees are entitled to the protection of the Court. After appointment they were required to do a considerable amount of work. This has included three appearances before the Court. It was not until the third of these occasions, on 8 June 2011, that a realistic picture of the debtor’s position became clear. Still no tax returns had been lodged since 2005. The Trustees were required to provide a report to the creditors. Because the debtor failed to provide a statement of affairs until 15 May 2011, this required work to be done by the Trustees. The Trustees were then required by the Court to prepare a report for these proceedings.
The debtor’s own evidence shows that his affairs were out of control. The work done by the Trustees should be recognised, which an order for annulment would ensure.
The Trustees referred to the approach of the Court as set out in Heinrich v Commonwealth Bank of Australia [2003] FCAFC 315, and also to the decision of Tracey J in Bulic v Commonwealth Bank of Australia [2007] FCA 307, and in particular to the onus placed on the Applicant who seeks an annulment to place before the Court all relevant material with respect to his or her financial affairs so that the Court may be properly informed and may make a judgment that is based on the actual circumstances of the Applicant. The Trustees drew the Court’s attention to the reference by his Honour in that case to the article of Hassall entitled ‘Annulment of Bankruptcy and Review of Sequestration Orders’,[9] and in particular drew attention to the matters the Court will take into account in the exercise of its discretion, including the conduct of the bankrupt and the degree of cooperation by a bankrupt with the Trustees.
[9] (1993) 67 Australian Law Journal 761.
The Trustees also drew the attention of the Court to similar comments concerning the relevance of the conduct of the bankrupt in the decision of the Full Bench of the Federal Court in Ozer v Australian Liquor Marketers Pty Ltd[2001] FCA 1197; and to the decision of Barnes FM in Begetis.[10] In the latter case, the sequestration order that had been made in the absence of the debtor was set aside. The debtor had attended Court armed with his chequebook and intending to pay the petitioning creditor, but could not find the Court and arrived after the order was made. He paid the debt owed to the petitioning creditor. There was evidence that his assets exceeded his liabilities and that his income exceeded his expenses. Her Honour referred to the necessity to strike a balance between the rights of the debtor and the rights of the Trustee, who had simply done what the Act required him to do.
[10] Begetis v Temperzone Australia (2007) FMCA 498.
The Trustees stated that the small amount of the debt owed by the petitioning creditor should not be regarded as a factor. They referred the court to the decision in FAI Insurances Ltd v Goldleaf Interior Decorators Pty Ltd (No. 2) (1988) 14 ACLR 285; (1988) 14 NSWLR 643; a decision of the New South Wales Court of Appeal. In that case, the Court commented that, and this was in the context of the winding up of a company “a small debt may frequently signal the existence of many other such debts … a company’s failure to pay a small debt may often be the best possible evidence of the company’s insolvency.” [11]
[11] (1988) 14 NSWLR 643 at 650.
The Trustees also referred to the debtor’s complaints about the Trustees’ fees. It was submitted that the fees were high because the bankrupt had not cooperated in the administration of the estate and substantial work had to be undertaken by the Trustees since their appointment. The bankrupt has made no offer to pay any fees at all to the Trustees. The Trustees have acted in accordance with their statutory obligation and the fees have been approved by the creditors.
Conclusions
These are applications by Mr Catterick for review of the decision of Registrar Hetyey to make a sequestration order on 1 March 2011, and, in the alternative, for an order that his bankruptcy be annulled.
The history of the matter is as follows. On 30 June 2010, the petitioning creditors caused a bankruptcy notice to be issued against Mr Catterick, the Applicant in these proceedings. At the time, the parties were involved in other bankruptcy proceedings, being MLG334 of 2010. In those proceedings, the petition was dismissed on
26 August 2010, although an ongoing issue in relation to costs remained.
The affidavit of service of Ms Janine Carol Clark, process server, filed
21 January 2011 states that she served a copy of the bankruptcy notice on Mr Catterick by placing the notice in a sealed envelope addressed to him in the secure letterbox at 3A Cliff Street, South Yarra, on 10 September 2010. Mr Catterick, in an affidavit sworn on 7 April 2011, denied receiving that notice.The creditors sought to proceed with a creditor’s petition on the basis of failure by the Applicant to pay the amount demanded in the bankruptcy notice. On 1 December 2010, the petitioning creditor made an application to the Court for an order for substituted service of the creditor’s petition. The application was supported by an affidavit of David Free, which stated that between 12 November 2010 and
24 November 2010 agents of the petitioning creditor had attempted on four occasions to serve the Applicant at his home address.
Various searches had confirmed that the address at 3A Cliff Street, South Yarra to be the Applicant’s residential address and, in a visit to the office of the petitioning creditor’s solicitors on 20 October 2010, the Applicant confirmed that he lived at 3A Cliff Street, South Yarra.
Based on that affidavit, Registrar Pringle made an order on
15 December 2010 providing for substituted service by posting the relevant documents to the Applicant at 3A Cliff Street, South Yarra;
by handing the documents to a person at that address, or placing them in the letterbox there, and by sending an SMS message to the Applicant in the following terms, and I quote:
SMS by court order, bankruptcy case MLG511/10 has been filed against you. Documents can be inspected at the court, Level 7, 305 William Street, Melbourne.
On 21 January 2011, Ms Dianne Wilson, of LFS Legal, swore and filed an affidavit stating that the relevant documents had that day been posted to the Applicant at 3A Cliff Street, South Yarra. Mr Catterick in his affidavit of 7 April 2011 states that from mid-November until the end of December 2010 he was ill with pancreatitis and was an inpatient at the Alfred Hospital from 17 December to 23 December 2010. On
23 December 2010, while still at the hospital, he received a text message on his phone in the terms set out in the order of 15 December 2010. He caused his solicitors to attend the Federal Court and search the file number MLG511/2010, and was advised that this file related to a migration matter.
Following his discharge from hospital, Mr Catterick states that he was convalescing at his mother’s residence. He became aware of the bankruptcy proceedings on 9 March 2011 when he received a telephone message from David Quinn informing him that Mr Quinn had been appointed as his trustee in bankruptcy. Mr Catterick states that during the relevant periods in 2010 and early 2011, the petitioning creditor’s solicitors were in contact with his solicitors and did not inform them of the proceedings. Nor did they inform him when he visited their offices in October 2010.
The petitioning creditor failed to bring to the attention of the Registrar in making the application for substituted service that there were already proceedings which had not been finalised between them and the debtor, in which the debtor had solicitors on the record. Had they done so, it may have influenced the type of order made by the Registrar. In an ex parte application, such as an order for substituted service, it is incumbent on the party seeking the order to provide the Court with all the material facts which may be relevant. I would have considered that the existence of bankruptcy proceedings, which had not been finalised due to the cost issue, and that solicitors were acting for the Applicant in those proceedings, were relevant matters which should have been brought to the Registrar’s attention.
Further, the Order made by the Registrar was defective in that it contained the wrong file number. While Mr Catterick was served with notice of the bankruptcy proceedings by SMS message, the mistake in relation to the file number meant that the proceedings were not drawn to his attention by those means. Nevertheless, service was effected in accordance with the means provided for in the Orders for substitute service. It is therefore to be regarded as sufficient service, even if
Mr Catterick did not in fact have his attention drawn to the proceedings by the procedures mandated by those orders. I refer to the matter of Vonidis v BMW Australia Finance Ltd,[12] a decision of Foster J on
31 May 2011, which deals with the circumstances where service of a bankruptcy notice has been affected in accordance with substituted service.
[12] [2011] FCA 589.
The defects in service and the failure to disclose may not have been sufficient in themselves for me to consider that the sequestration order ought not to have been made had it not become apparent that
Mr Catterick was and is solvent.
The issue then becomes should the sequestration order be set aside or the bankruptcy annulled? In Vaucluse Hospital Pty Ltd v Phillips,[13] Riethmuller FM considered both the legislation and the policy issues in determining whether a sequestration order should be set aside or the bankruptcy annulled. In that case a sequestration order was made in the absence of the debtor on 3 November 2005, of which he says he became aware the following day. He applied for a review of the Registrar’s decision on 23 November 2005. The facts before Riethmuller FM satisfied him that the debtor was solvent and the bankruptcy should be brought to an end.
[13] [2006] FMCA 44.
His Honour referred to the purpose of insolvency law; to the provisions of s.153B of the Bankruptcy Act1966; and to the powers of the Court in reviewing a decision of a Registrar exercising delegated powers.
His Honour concluded that the Court must consider the matter afresh, and if a Registrar’s order is not appropriate, prima facie, it should be set aside. He also expressed the view that a trustee should adopt a cautionary approach where there are indicators which would suggest such is appropriate. These indicators included: the sequestration order is made with respect to a relatively small debt; the sequestration order is made in the absence of the bankrupt; the debt is not incurred in the course of business or commercial dealings; and the bankrupt appears to have significant assets.[14]
[14] Vaucluse Hospital Pty Ltd v Phillips [2006] FMCA 44 at paragraph 51.
In relation to the issue of the rights of the trustee to be paid for work undertaken in the administration of the estate, Riethmuller FM said:
Using section 153B solely to overcome a lack of power to order that a party pay the trustee’s remuneration and expenses, or part thereof, in a review or appeal, is an approach which requires considerable care. To allow the consequences of a registrar’s order upon those choosing to participate in the effect of the order to become a basis to refuse to set it aside has the appearance of a less than appropriate review.[15]
[15] Ibid at paragraph 65.
His Honour went on further to say:
In determining what orders ought to be made the court has a broad discretion. The considerations that will usually be relevant include the following:
a)Ordinarily, a review application made within the time limit would result in an order setting aside the sequestration order.
b)When considering whether to exercise discretion to annul rather than set aside, regard should be had to all of the relevant facts and circumstances, which will usually include
i)Whether the administration of the estate has resulted in events or transactions for which the protection of section 154 are reasonably required;
ii)Whether the review applicant should ever have been made bankrupt;
iii)Whether the review has been filed and prosecuted in a timely fashion;
iv)The conduct of the parties;
v)The circumstances leading to the sequestration order, including the nature of the debt and the amount of the debt.[16]
[16] Vaucluse Hospital Pty Ltd v Phillips [2006] FMCA 44 at paragraph 76.
In determining the appropriate action in that case, his Honour also raised the following:
There is no evidence before me as to why the creditor did not simply move to recover the judgment debt as against the interests of the respondent in the home that he jointly owns with his father and brother. The process is relatively straightforward and relatively inexpensive. As Deane J said in Sarina v the Council of the Shire of Wollondilly:
It does not appear to me that it is possible to divine any policy underlying the provisions of the Bankruptcy Act to the effect that a creditor should be entitled to make a recalcitrant debtor bankrupt even though the debtor satisfies that court that he is plainly solvent and able to pay his debts. It seems to me that it may well be the legislative intent was to leave a creditor in those circumstances to the ordinary remedies by way of execution and garnishee.[17]
[17] Ibid at paragraph 80.
In Begetis v Temperzone,[18] Barnes FM dealt with similar issues. In that matter, a sequestration order had been made on 7 December 2006 in the absence of the debtor. He filed an application for review on
21 December 2006. The matter was originally listed for hearing on
16 January 2007, but was twice adjourned before the matter was settled as between the petitioning creditor and debtor. There was a further adjournment for the trustee to prepare a report in relation to the bankruptcy. On the adjourned date, the trustee sought that his expenses of administration be met by the debtor. A sworn affidavit of the trustees noted that the debtor had not provided a statement of affairs and had not filed any evidence as to his solvency or as to the extent of his creditors.
[18] Begetis v Temperzone Australia Pty Ltd (2007) FMCA 498.
The matter was further adjourned for the bankrupt to file affidavit evidence in support of his application that the sequestration order be set aside on the basis of his solvency. At that hearing, her Honour was satisfied that the debt owing to the petitioning creditor had been paid and the debtor was solvent. The bankruptcy should therefore be brought to an end. The debtor contended that the Court should, in exercising its discretion, take in to account the factors Riethmuller FM suggested to be relevant in Vaucluse Hospital.[19] In the case of
Mr Begetis, the review application was made within time; there were no other creditors before the Court; the trustee had been given notice that the bankrupt disputed his bankruptcy; the period of administration was not lengthy; the debt was for a relatively small sum; and it was paid; and the bankrupt was solvent. There was no evidence as to why the creditor had not sought to recover the judgment debt against the bankrupt’s interest in a property rather than by making a solvent debtor bankrupt.
[19] Vaucluse Hospital Pty Ltd v Phillips [2006] FMCA 44.
Her Honour concluded that having regard to all the evidence she was not satisfied that it was appropriate to make an annulment order rather than set aside the sequestration order. She did, however, give consideration to the fact that the trustee’s report to the Court was necessitated by the fact of the bankruptcy and the absence of relevant evidence from the debtor. She therefore ordered that the debtor meet the legal costs of the proceedings in relation to preparation of the trustee’s report and the trustee’s appearance in the proceedings.
Similarly, in Chamberlain v Vittera Ltd [2010] FMCA 747, her Honour, again Barnes FM, was satisfied that the bankrupt had no notice of the petitioning creditor’s judgment, the bankruptcy notice, or the creditor’s petition until after he became aware on 26 August 2010 that a sequestration order had been made on 2 August 2010.
On 6 September 2010, he lodged an application seeking either that the bankruptcy be annulled or that the sequestration order be set aside. Her Honour was satisfied that there was a reasonable explanation for the delay in making the application and granted leave for the application to have the sequestration order set aside to be heard. She considered that despite the fact that the trustee had incurred some expense in administering the estate in circumstances where the application was not lodged within 21 days of the date of the sequestration order, the debtor had acted promptly when he became aware of his bankruptcy and that it would be unfair to burden him with the expenses of administering the estate.
Her Honour did, however, consider it appropriate to order that the debtor pay the costs of the trustee in preparing his report to the Court, and that, having regard to the fact that the debtor originally sought an annulment of the bankruptcy, the trustee was entitled to argue that such an order should be made and the debtor should also pay the trustee’s costs of the proceedings.
In the matter before me, the sequestration order was made on
1 March 2011. Mr Catterick states that he first became aware of the order on 9 March 2011 when he was contacted by the Trustee. He made an application to the Court to annul the bankruptcy on 8 April 2011 and on 27 April 2011 was given leave to file an application for an order to review the decision of the Registrar to make the sequestration order.
The bankruptcy notice was issued for a debt in the amount of $4,816.12. As Mr Catterick pointed out in his affidavit dated
7 April 2011 there had been previous proceedings involving the same petitioning creditor in which he had sworn an affidavit as to solvency claiming a net worth in excess of $3 million. He has always claimed in these proceedings that he is solvent. He provided certain material in relation to his assets in affidavits sworn on 21 and 27 March 2011, although he did not provide a statement of affairs until 24 May 2011, and it was not until an affidavit sworn on 7 June 2011 that sworn valuations of his properties were provided.
Nevertheless I am satisfied that had the material, which is currently before the Court, been before the Registrar, no sequestration order would have been made. It is true that the onus of proving his solvency always lay with Mr Catterick. He has been somewhat tardy in bringing that material before the Court and providing it to the Trustee. He has however paid his unsecured debts and it is clear that he is and was solvent and able to pay his debts as and when they fell due. It is true that Mr Catterick did allow his affairs to get out of order; he points to his ill health as a reason for this. There is however a gap between not paying one’s debts because you have allowed things to get out of order, and being unable to pay those debts.
As Riethmuller FM pointed out in Vaucluse Hospital, the purpose of bankruptcy proceedings is not to provide a creditor with an alternative means of collecting a debt, but to provide a “fair and orderly process for dealing with the financial affairs of insolvent individuals”.[20]
[20] Vaucluse Hospital Pty Ltd v Phillips [2006] FMCA 44 at paragraph 18.
Taking into account all the circumstances in this case, I am of the view that the appropriate order in this case is to set aside the sequestration order and dismiss the creditor’s petition. I am satisfied that the Trustees should be able to recover the costs of these proceedings:
·Firstly, because the initial application was for annulment of the bankruptcy and the Trustees were entitled to argue that, despite the granting of leave to file the application to review the making of a sequestration order, annulment was the appropriate course; and
·Secondly, because the Trustees were ordered by the Court to prepare a report and were entitled to costs in relation to its preparation.
I certify that the preceding forty-four (44) paragraphs are a true copy of the reasons for judgment of Whelan FM
Date: 5 September 2011
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