Clark v Furnari

[2007] FMCA 513

FEDERAL MAGISTRATES COURT OF AUSTRALIA

CLARK v FURNARI [2007] FMCA 513

BANKRUPTCY – Annulment – whether Bankrupt ‘solvent’ at time sequestration order made.

Bankruptcy Act 1966, s.153B
Federal Magistrates Court (Bankruptcy) Rules 2006, div.7.1, r.7.04

Heinrich v Commonwealth Bank of Australia [2003] FCAFC 315
Re Williams (1968) 13 FLR 10
Pattison v Hadjimouratis [2006] FCAFC 153

Applicant: TERENCE BENJAMIN CLARK

Respondent: THEODORE FURNARI

File number: MLG 706 of 2006

Judgment of: McInnis FM

Hearing date: 11 December 2006

Delivered at: Melbourne

Delivered on: 13 April 2007

REPRESENTATION

Applicant: No appearance

Solicitor  for the Respondent: Mr N. Hannan

Solicitors for the Respondent: Dibbs Abbott Stillman

Counsel for the Trustee: Mr P. Agardy

Solicitors for the Trustee: Harwood Andrews

ORDERS

Pursuant to s.153B of the Bankruptcy Act 1966 the bankruptcy of Theodore Furnari pursuant to a sequestration order made 3 August 2006 be annulled.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
MELBOURNE

MLG 706 of 2006

TERENCE BENJAMIN CLARK

Applicant

And

THEODORE FURNARI

Respondent

REASONS FOR JUDGMENT

1. In these proceedings Theodore Furnari (the Bankrupt) filed an Application on 29 September 2006 seeking an order pursuant to s.153B of the Bankruptcy Act 1966 (the Act) that his bankruptcy be annulled.

2. A sequestration order was made against the Bankrupt on 3 August 2006 upon a creditor’s petition filed 31 May 2006 by Terence Benjamin Clark (the Creditor).

3. The Bankrupt’s application for annulment is supported by affidavits sworn by him on 27 September 2006, 1 December 2006 and

   
   

   7 December 2006.  The Trustee does not oppose the Application.  At the hearing there was no appearance for the Creditor and it is noted that the Trustee has complied with div.7.1 of the Federal Magistrates Court (Bankruptcy) Rules 2006 (the Rules) by providing a report to the Court and notifying other Creditors of the Application.  No other Creditors appeared.

4. The Bankrupt did not appear at the hearing before the Registrar on

   
   

   3 August 2006 when the sequestration order was made.

Background

1. By way of background, it is noted that the Bankrupt in his affidavit sworn 27 September 2006 deposes as follows:

   “7.I have been involved with a long and drawn out family law dispute with my wife Karen Elizabeth Clark since 1994.  At all times my wife has been represented by Peter Falconer who was originally with Bell Falconer and later with Peter Falconer & Associates, both of Geelong.  The present dispute relates to my entitlement to have access to my daughter Teresa Michelle Furnari, who was born on 16 March 1995 together with claims against my wife of breaches of prior property and contact orders.”

2. The Bankrupt in his affidavit material claims he did not appear at the return of the creditor’s petition against him as he made an incorrect assumption that paperwork he received related to family law proceedings and he did not read the material.  He claims that he appeared in the Family Court on 3 August 2006 and was not aware that bankruptcy proceedings had been scheduled to be heard on the same day.  He deposes that the Creditor’s solicitors share an office with solicitors who acted on behalf of his wife in family law proceedings.

3. Further, in his affidavit he provides details of his financial position including assets claimed to be worth $130,953.50 and relevantly deposes:

   “15.In my Statement as to affairs I have identified that I have creditors totalling $22,720.56.  I have assets worth $130,953.50 comprising primarily of:

   (a)     shares in Carnarvon Petroleum worth $15,753.00;

   (b)a quarter share in a property situated at 196 Yarra Street, Geelong, which property is unencumbered.  I note that the joint tenancy has been severed by operation of law;

   (c)Superannuation totalling $30,310.50 which is a non divisible assets; and

   (d)     Monies owed by my debtors totalling $22,350.00

   Now produced and shown to me and marked “TF6” is a copy of my ANZ Share trading account as at 19 September 2006.

   Now produced and shown to me and marked “TF7” is a copy of title search with respect to the property known as 196 Yarra Street, Geelong and more particularly described in Certificate of Title Volume 07029 Folio 646.

   The amount contained in my statement of affairs differs from the amount claimed by my creditors for the reasons set out below:

Creditor	Amount Claimed	Amount in Statement	Reason for Discrepancy
Terry Clark	$8,078.67	$7,950.92	Purported claim for interest
Child Support Registrar	$0.00	$500.00	They have been unable to confirm to me how much is owing
Forbes Dowing – legal fees	$9,567.24	$5,870.22	Forbes Dowling has not provided me with an explanation for the difference.
Karen Clark	$56,477.83	$558.42	See exhibit TF9

Now produced and shown to me and marked “TF8” is a bundle of correspondence from Harwood Andres and Peter Falconer to Peter McGibbon.

Now produced and shown to me and marked “TF9” is a document marked as Attachment A which summarises the claims for costs made by Peter Falconer as solicitors for Karen Clark and my response to the same.

1. There are disputes concerning outstanding claims for costs which may be payable by the Bankrupt.  I accept on a proper analysis of the material, as submitted by the Bankrupt, that even if all the disputed amounts in respect of costs claimed to be payable or accepted, the Bankrupt’s total debts equal $78,639.97 which together with an amount of tax payable at $38,637.20 makes a total of $117,277.17.

2. The Bankrupt produced a valuation of the property at 196 Yarra Street, Geelong revealing a value of $250,000.00 to $270,000.00.  Although not a sworn valuation it does appear to refer to comparable sales and is otherwise not challenged on the material before the Court.  Accordingly, I am prepared to accept the valuation for the purpose of this Application.

3. Pursuant to r.7.04 of the Rules the Trustee has filed and served an affidavit sworn 6 November 2006 (the Trustee’s affidavit).

4. In the Trustee’s affidavit reference is made to what is described as “further information regarding the bankrupt’s interest” in the Yarra Street property” as follows:

   “7.On 6 October 2006 Toni Vankan (the bankrupt’s sister), and the bankrupt’s mother attended my office and informed me that the bankrupt’s father paid $11,500.00 to the bankrupt as consideration for the bankrupt’s interest in the property in 1981.

   8.On 6 October 2006, I was informed by the bankrupt’s sister that the bankrupt has refused to a signed transfer in relation to payment for the bankrupt’s interest in the property.

   9.On 9 October 2006, I had a telephone discussion with the bankrupt during which he denied the claims made by the bankrupt’s sister and the bankrupt’s parents that he had agreed to transfer his interest in the property to his father for $11,500.00.

   10.On or about 20 October 2006 the bankrupt’s sister and the bankrupt’s parents, attended my office and requested that I sign a transfer of land in relation to the property.  I did not sign the transfer of land.”

5. The Bankrupt in his second Affidavit sworn 1 December 2006 relevantly deposes as follows:

   “3.I refer to paragraph 7 to 11 of Mc Gibbon’s affidavit and state that in 1981 my father gave to me the sum of $11,012 to start a business by way of cheque made payable to my supplier KeDoMo Lubricants Pty Ltd.  The business was conducted by me and involved me acting as a wholesaler and retailer of lubricants.  I ceased operating that business in or about 1983.

   4.At no time was it discussed that the payment of $11,012 was for my interest in the property situated at 196Yarra Street, Geelong (“the Property”).

   ---

   7.At no stage have I agreed to sell or transfer my interest in the property.

   8.I note that my sister in her discussion with McGibbon has not been able to produce any document signed by me evidencing my intention to transfer my interest in the Property to my parents.”(sic)

6. In the absence of any evidence beyond the mere assertion set out in the Trustee’s affidavit, I conclude that there is no agreement to sell or transfer the Bankrupt’s interest in the relevant property.  No documents have been produced or evidence provided which would lead the Court to conclude that there was any intention by the Bankrupt to transfer his interest in the property to his parents.

7. It should be noted that at the commencement of these proceedings persons purporting to be the mother and sister of the Bankrupt sought to appear by indicating to the Court Associate that they wished to appear.  However, given that they were not Creditors I did not permit the appearance although they remained in Court for the hearing.

Relevant law

1. Section 153B of the Act provides for:

   “Annulment by Court

   (1)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 to have been accepted by the Official Receiver, the Court may make an order annulling the bankruptcy.

   (2)In the case of a debtor's petition, the order may be made whether or not the bankrupt was insolvent when the petition was presented.”

2. I accept that the principles governing the application of s.153B appear in the joint judgment of Carr, Finn and Sundberg JJ in Heinrich v Commonwealth Bank of Australia [2003] FCAFC 315 as follows:

   “20.The Court must first consider whether the sequestration order ought not to have been made. If it so finds, then the Court must consider whether, in the exercise of its discretion, the bankruptcy should be annulled: Re Deriu (1970) 16 FLR 420. Later evidence of previously unknown facts may disclose matters which show that the sequestration order ought not to have been made. That is, the Court is entitled to consider not only the case as disclosed at the time when the sequestration order was made, but also those facts now known then to have existed. The Court excludes those facts which have occurred since the order was made. Later evidence of previously unknown facts may disclose matters which show that the sequestration order ought not to have been made: Re Frank; Ex parte Piliszky (1987) 16 FCR 396; Stankiewicz v Plata [2000] FCA 1185 at [19]; Re Williams (1968) 13 FLR 10 at 23; Re Ditfort; Ex parte Deputy Commissioner of Taxation (1988) 19 FCR 347. These authorities, all of which were cited by the learned primary judge in his judgment, were accepted at first instance as reflecting the relevant law.”

3. I further accept as submitted by Counsel for the Bankrupt that when determining whether a sequestration order ought not to have been made the Court is entitled to consider not only the case as disclosed at the time the order was made, but as it would have been disclosed had all the true facts been before the Court on the making of the order (see Re Williams (1968) 13 FLR 10 at 23).

4. It is noted that as a matter of law if the Bankrupt was clearly solvent then ordinarily a Court would dismiss the petition even if the Bankrupt appeared to be unwilling to pay debts.

5. I further accept that the Court has a wide discretion when considering whether or not to make an order annulling the bankruptcy (see Pattison v Hadjimouratis [2006] FCAFC 153 at 172).

6. Counsel for the applicant has correctly set out the factors to be taken into account in the exercise of the Court’s discretion, including reference to the relevant authorities as follows:

   “(a)Delay by the bankrupt in making the application (see Wong v Robinson [1995] FCA 805 at 7) (“Wong”);

   (b)Interest of creditors;

   (c)Failure to file a statement as to affairs (see Piepkorn v Scott [2005] FCAFC 88 at 3);

   (d)Failure to make a full disclosure (see Re Pappas; ExParte Tapp (1997) 78 FCR 524 at 531);

   (e)Making arrangements to pay the debt to the petitioning creditor and the trustees costs (see Wong at 8);

   (f)conduct of the bankrupt since bankruptcy including committing offences (see Ozer v Australian Liquor Marketers Pty Ltd [1999] FCA 1206 at 26).”

Reasoning

1. In my view, having found that I am not satisfied that this Court should accept on the material before it the Applicant’s claim to have an interest in the property can be successfully disputed it is then necessary to consider the financial position in general terms.

2. Allowing for the interest in the property, it is my conclusion that at the time when the sequestration order was made the Applicant was solvent.  Whilst I may have some reservations arising from the concerns expressed by the Trustee, including a reference to tax liability and satisfaction of costs orders in the Family Court which were raised during the course of submissions I am not otherwise satisfied that those matters are sufficient to detract from the conclusion that at the time the sequestration order was made the applicant was solvent.

3. I accept as submitted by Counsel for the Applicant and which seems to be conceded, that the Trustee having sold a parcel of shares for an amount of approximately $24,000.00 now has sufficient funds to pay costs and indeed costs of the petitioning creditor which no doubt will be assessed on the appropriate scale.  It is noted that the Bankrupt has no objection to arrangements being made for the petitioning creditor’s tax costs to be paid from the balance of funds currently held by the Trustee, after payment of the Trustee’s taxed or agreed remuneration and disbursements.

4. Accordingly, I can see no other evidence that would lead the Court to conclude that there are any other relevant factors set out earlier in this judgment which apply to the present application.

5. During the course of the proceeding it was conceded that the Applicant took what could only be described as a somewhat “cavalier” approach to the creditor’s petition and the proceedings in this Court. Nevertheless, that attitude of itself is not sufficient to persuade the Court to refuse to exercise its discretion to make an order pursuant to s.153B of the Act that the bankruptcy be annulled.

6. Accordingly, the order of the Court will be:

   Pursuant to s.153B of the Bankruptcy Act 1966 the bankruptcy of Theodore Furnari pursuant to a sequestration order made 3 August 2006 be annulled.

7. I shall hear Counsel in relation to the form of any order concerning any costs.

I certify that the preceding twenty-seven (27) paragraphs are a true copy of the reasons for judgment of McInnis FM

Associate: 

Date: 13 April 2007