Douglas Partners Pty Ltd v Bourne

[2017] FCCA 3392

FEDERAL CIRCUIT COURT OF AUSTRALIA

DOUGLAS PARTNERS PTY LTD v BOURNE [2017] FCCA 3392

Catchwords:
BANKRUPTCY – Application for extended adjournment in a Creditor’s Petition – Instalment order made in the Local Court.

Legislation:

Bankruptcy Act 1966 (Cth), ss.33, 40, 52, 116

Federal Circuit Court Rules 2001, r.6.19

Cases cited:

Rotstein & Associates v Slaveski [2010] FCA 493

Re Pollack, Ex parte Deputy Commissioner of Taxation (1991) 32 FCR 40
Re Padagas, Ex parte Carrier Air Conditioning Pty Ltd [1977] FCA 12; (1977) 30 FLR 170
Re Lynch, Ex parte Depela Pty Ltd (in liq) (1998) 81 FCR 444
Re Arcuri Bankrupt; ex parte Master Lease and Rental Service Pty Ltd Creditor (Unreported, Federal Court of Australia, Cooper J, 28 June 1996)
Ahern v Deputy Commissioner of Taxation (Qld) [1987] FCA 312
Field v Commercial Banking Co of Sydney Ltd [1978] FCA 46; (1978) 37 FLR 341
Rozenbes v Kronhill [1956] HCA 65; (1956) 95 CLR 407

Applicant: DOUGLAS PARTNERS PTY LTD ACN 053 980 117

Respondent: ROBERT JAMES THOMAS BOURNE

File Number: SYG 2924 of 2016

Judgment of: Registrar Chuan Ng

Hearing date: 7 September 2017

Date of Last Submission: 7 September 2017

Delivered at: Sydney

Delivered on: 14 December 2017

REPRESENTATION

Solicitors for the Applicant: Ms S. Nash of O’Neill Partners – Commercial Lawyers

Solicitors for the Respondent: Mr G. Wilks of Pryor, Tzannes and Wallis Solicitors

ORDERS

1. The Creditor’s Petition is listed at 2:00pm on 16 August 2018 in the Law Courts Building at Queens Square.

2. The Applicant have liberty to apply for the listing of the Creditor’s Petition for hearing with 3 days’ notice before a Registrar, should the Respondent fail to comply with the Instalment Order made by Penrith Local Court on 5 September 2017.

3. Costs be reserved.

FEDERAL CIRCUIT COURT
OF AUSTRALIA
AT SYDNEY

SYG 2924 of 2016

DOUGLAS PARTNERS PTY LTD ACN 053 980 117

Applicant

And

ROBERT JAMES THOMAS  BOURNE

Respondent

REASONS FOR JUDGMENT

SUMMARY

1. Before me is an application by the Respondent for an extended adjournment of the Creditor’s Petition.

2. This Creditor’s Petition was last before me on 7 September 2017 in the Bankruptcy List. On that date the Respondent applied by way of a Notice Stating Grounds of Opposition for an extended adjournment. The purpose of the lengthier adjournment was to allow him an opportunity to continue making repayments pursuant to the Instalment Order made by Penrith Local Court on 5 September 2017.

3. Following the tender of affidavit evidence and hearing submissions from both parties, I reserved my decision in relation to the adjournment application to the present date.

4. For the reasons identified below:

   a)I adjourn the Creditor’s Petition to the 16 August 2018 at 2 pm; and

   b)Before 16 August 2018, I grant the Applicant liberty to restore the Creditor’s Petition to the Bankruptcy List with 3 days’ notice if there is a failure by the Respondent to comply with the payment regime defined under the Instalment Order.

HISTORY OF PROCEEDINGS

Judgment in the Local Court

1. On 8 February 2016, a judgment was obtained by the Applicant against the Respondent in the Local Court at Penrith for $17,506.

Commencement of the bankruptcy proceedings

1. On 29 February 2016, a Bankruptcy Notice was obtained from the Official Trustee.

2. On 7 April 2016, the Bankruptcy Notice was personally served on the Respondent. In circumstances where no application to set aside the Bankruptcy Notice was made, an act of bankruptcy was deemed as occurring 21 days later, being on 28 April 2016: s 40(1)(g) Bankruptcy Act 1966 (Cth).

3. Almost six months later, on 25 October 2016 a Creditor’s Petition was presented in the Sydney Registry of the Federal Circuit Court of Australia.

4. The Creditor’s Petition was listed on 28 November 2016, 30 January 2017, and 13 June 2017. No orders were made by the presiding Registrars on each of those occasions in circumstances where the Creditor’s Petition remained unserved.

5. On 19 July 2017, the Applicant applied for substituted service of the Creditor’s Petition.

6. On 26 July 2017, a Registrar made Orders for substituted service of the Creditor’s Petition. These Orders were complied with by 4 August 2017. The Creditor’s Petition was deemed to have been served by 18 August 2017 and was re-listed to 24 August 2017.

7. On 24 August 2017, the matter came before me as the presiding Registrar. As the deemed date of service was not 5 clear working days from this hearing date: rule 6.19(b) Federal Circuit Court Rules 2001; an application for an adjournment was sought by the Applicant and was not opposed. The matter was the adjourned to 7 September 2017.

8. On 6 September 2017, the Notice Stating Grounds of Opposition (“Notice”), supporting affidavits and a Notice of Appearance was filed on behalf of the Respondent. The grounds referred to in the Notice argued that the making of an Instalment Order by the Local Court on 5 September 2017 was sufficient cause for this Court not to proceed to make a Sequestration against the Respondent’s Estate: s 52(2)(b) Bankruptcy Act 1966 (Cth).

9. On 7 September 2017, the matter came back before me as the presiding Registrar.  On behalf of the Respondent, Mr Wilks applied for an extended adjournment of the Creditor’s Petition on the basis that his client was complying with the Instalment Order made by Penrith Local Court. This was opposed by Ms Nash. The respective submissions are summarised below and I return to them later.

THE EVIDENCE RELIED UPON BY THE RESPONDENT

1. The relevant aspects from the Affidavit evidence relied upon by the Respondent may be succinctly summarised[1].

   [1] Affidavits of Graham Barry Wilks dated 24 August 2017 (annexing further material from the Local Court and a further Affidavit of Robert James Thomas Bourne dated 18 August 2017); and Affidavit of Graham Barry Wilks dated 6 September 2017.

2. After the Applicant Creditor obtained a judgment debt in the Local Court on 8 February 2016, the Respondent (then aged 74) made 21 weekly repayments of $100 directly to the Applicant, amounting to $2,100.

3. On 14 November 2016, the Respondent decided to formalise his voluntary repayments and obtaining an Instalment Order from the Local Court at Penrith to repay the debt by weekly repayments of $150 (“the first Instalment Order”). By 7 February 2017, the Respondent had made 12 repayments of $150 totalling $1,800.

4. The total amount of $3,900 repaid as at 7 February 2017 is not in dispute.

5. On 8 August 2016, the Respondent applied to Centrelink for his aged pension, but was delayed for several months in receiving this benefit. Between August 2016 to January 2017 he continued making his repayments (the $100 and $150 weekly repayments before and after the first Instalment Order was made) from money he borrowed from his landlady. That source of finance eventually dried up. After 7 February 2017 the Respondent was unable to continue making repayments and fell into default of the first Instalment Order.

6. On 23 March 2017, the Respondent received $37,289.56 by way of his backdated Centrelink aged pension, which equated to $355.10 per week[2]. From this renewed source of funds he voluntarily repaid $16,000 to his landlady; $12,685 to Tooheys Limited for another outstanding judgment debt; $6,500 for outstanding medical bills including hospitalisation for chronic spinal surgery; and spent the balance for outstanding living expenses.

   [2] Letter from Centrelink dated 23 March 2017, Annexure C to the Affidavit of Robert James Thomas Bourne dated 18 August 2017.

7. In June 2017 the Respondent broke his arm after a serious fall. He proffers this as an explanation for not applying to reinstate the Instalment Order earlier.

8. On 5 September 2017, the Respondent applied for and obtained a new Instalment Order from Penrith Local Court (“the second Instalment Order”). As part of this application he completed a Financial Statement declaration form identifying two outstanding liabilities: the present judgment debt (now reduced to $15,406); and a debt to Credit Corp/Amex for $75,000 which was being repaid at $10 per month[3].  

   [3] Financial Statement, Annexure A to the Affidavit of Robert James Thomas Bourne dated 18 August 2017.

9. Since 12 September 2017 to the date of this judgment, the Respondent has made weekly repayments of $150 in compliance with the second Instalment Order. An additional $1900 would have been repaid as at 13 December 2017, leaving an outstanding debt of $11,106.

THE RESPONDENT’S SUBMISSIONS

1. Mr Wilks submits on behalf of the Respondent that the aforementioned circumstances demonstrate his willingness to “honour his obligations and make these repayments.” In circumstances where he now had a continued source of income from Centrelink, the Respondent is now committed to repaying the outstanding debt, which was demonstrated by him applying for the Second Instalment Order.

2. In relation to the Respondent’s decision to repay the entirety of another judgment to Tooheys (and thereby preferring that creditor), it was submitted on his behalf that at the time he decided to repay this debt in full he had not obtained proper legal advice.

3. Relying on the decision of Rotstein & Associates v Slaveski [2010] FCA 493 (“Rotstein”), it was submitted that in the present case I should exercise my discretion to allow the Respondent a lengthier adjournment to comply with the second Instalment Order, in circumstances where there was no prejudice to the Applicant who was continuing to receive payments towards the judgment debt. If the Court was concerned with the Respondent’s genuineness to continuing making repayments before the expiry of the Creditor’s Petition or if he defaulted, Mr Wilks submitted the matter could be relisted in advance of that date.

THE APPLICANT’S SUBMISSIONS

1. On behalf of the Applicant, Ms Nash vigorously opposed the adjournment application. By using his accrued Centrelink benefits to repay the debts owed to Tooheys Ltd and his landlady in full, she submitted that the Respondent contravened the Pari Passu principle by favouring particular creditors over others. Ms Nash submitted that the proper course would have been for the Respondent to have entered into an arrangement, either by way of a Personal Insolvency Agreement or Sequestration Order, whereupon a Trustee collected and redistributed the assets equally between all creditors. By unilaterally preferring certain creditors over others, it was submitted that the Respondent’s conduct has disadvantaged the remaining creditors and contravened the public interest.

2. Ms Nash submitted that based on the remaining payments of $150 per week, it would take about 86 weeks before the debt was completely repaid. In circumstances where the Creditor’s Petition had a finite life, the debt would not be fully repaid before it expired.

3. Ms Nash further submitted that assuming the debt was repaid below the statutory minimum of $5,000, the Applicant would had no legal recourse to seek a sequestration order. She also distinguished the facts in the present case from that in Rotstein (see below).

4. Ms Nash also filed written submissions dated 7 September 2017, identifying the authorities that supported the principle that once the act of bankruptcy has been committed, any subsequent application to pay by Instalment Order has no force to stay the bankruptcy proceedings. I should indicate from the outset that there is no issue that the law is settled on this point[4], and that this was conceded by Mr Wilks.

   [4] See below at footnote 5.

5. The question turns to whether the present circumstances would enliven the exercise of my discretion to allow the Respondent a lengthier adjournment, so that he can comply with his obligations under the second Instalment Order.

THE RELEVANT CASE LAW

1. In Rotstein where Bromberg J dealt with a similar application to adjourn a Creditor’s Petition pursuant to s 33(1)(a) of the Bankruptcy Act 1966 (Cth) for an extended period. The Respondent faced an outstanding debt of $7,183.56, was experiencing psychiatric illness, and where a litigation guardian had been appointed for him in parallel proceedings in the Supreme Court of Victoria.

2. During the course of those bankruptcy proceedings, the Respondent applied for and obtained an Instalment Order from the Magistrates Court of Victoria to repay $8,510 (which had been increased to reflect interest). After the Respondent had repaid the interest component of $1,394.20 on the same date the Instalment Order was made, the Magistrate ordered the Respondent to repay the balance in monthly instalments of $700. The Instalment Order was being complied with by the time the Creditor’s Petition came before Bromberg J on 9 February 2000.

3. Recognising well-established principles that an Instalment Order obtained after the date of the act of bankruptcy cannot act as an automatic stay on the bankruptcy proceedings[5], Bromberg J considered it appropriate to exercise his discretion and granted the Respondent a 15-month adjournment to complete repaying the outstanding debt. His Honour also extended the life of the Creditor’s Petition for the maximum of 2 years, and granted liberty for the Applicant to apply to restore the matter to the list in the event of any default in payment.

   [5] Re Pollack, Ex parte Deputy Commissioner of Taxation (1991) 32 FCR 40; Re Padagas, Ex parte Carrier Air Conditioning Pty Ltd [1977] FCA 12; (1977) 30 FLR 170; Re Lynch, Ex parte Depela Pty Ltd (in liq) (1998) 81 FCR 444; Re Arcuri Bankrupt; ex parte Master Lease and Rental Service Pty Ltd Creditor (Unreported, Federal Court of Australia, Cooper J 28 June 1996).

4. In his judgment, Bromberg J helpfully considered the relevant principles which governed s 33(1)(a) of the Bankruptcy Act1966 (Cth) and the wide discretion which applied when considering such applications (bold emphasis added) :

   16.    Section 33(1)(a) of the Bankruptcy Act provides as follows:

   (1)     The Court may: 

   (a)    upon such terms as it thinks fit, at any time adjourn any proceeding before it, either to a fixed date or generally.

   17.It is evident that s 33(1)(a) gives the Court a wide discretion in relation to the grant of an adjournment. As Sweeney J (with whom Franki J agreed) stated in Field v Commercial Banking Co of Sydney Ltd [1978] FCA 46; (1978) 37 FLR 341 at 349, it would be unwise to attempt to draw up an exhaustive catalogue of the circumstances to which the Court should pay regard in considering an application for an adjournment of a creditor’s petition. However, the Court’s discretion should be exercised with a mind to the policy objectives of the Bankruptcy Act. Relevantly to the issues before me, those objectives include the public interest in stopping individuals who are unable to meet their debts from continued insolvent trading and assisting creditors who are unable to recover debts owed to them: See Rozenbes v Kronhill [1956] HCA 65; (1956) 95 CLR 407 at 414.

   18.In this case, Rotstein is the sole petitioning creditor. There is no evidence before me that Slaveski has other creditors. There is no evidence that Slaveski is involved in trade or commerce. There is evidence before me that a substantial part of the judgment debt has been paid and that if the instalment order continues to be adhered to the debt will be extinguished by 25 January 2011. There is nothing before me to suggest that the need to protect the public from insolvent trading would be put in jeopardy by an adjournment of the hearing of the creditor’s petition to a date sufficient to allow the obligations under the instalment order to be satisfied before the creditor’s petition is dealt with.

   ……

   20.It is contended, without evidentiary support, that Slaveski has repeatedly stated in prior proceedings that he cannot pay the judgment debt. Even if that were true, the fact is that the evidence before me shows that the judgment debt is being paid.

   21.Lastly, Rotstein complains that for a period of 22 months, Slaveski did not make any payment of the judgment debt. It says that there is a public interest that debts be enforced efficiently and expeditiously. That may be so. It is not the case however that bankruptcy proceedings are a mere debt collection tool at the disposal of creditors. Bankruptcy is not mere inter parties litigation; it involves a change of status and has quasi-penal consequences: Ahern v Deputy Commissioner of Taxation (Qld)[1987] FCA 312; (1987) 76 ALR 137 at 148 per Davies, Lockhart and Neaves JJ.

   22.Furthermore, insofar as Rotstein’s submission is intended to suggest that an adjournment will prejudice the timely payment of the judgment debt, I fail to see how that will be so. Even if the sequestration sought were to occur forthwith, the effect of the instalment order made by the Magistrates Court would not alter the effect of the instalment order. The period over which the judgment debt is to be paid was a matter determined by the Magistrates Court and done so over the opposition of Rotstein. An adjournment of the creditor’s petition will not delay the repayment of the judgment debt. Even if I were satisfied that Rotstein is a creditor unable to recover its debts, a matter which in the circumstances is not established, the objective of assisting creditors who are unable to recover debts owed to them will not be compromised by acceding to Slaveski’s application.

   23.Finally, Rotstein asserts that there is a high likelihood that Slaveski will breach the instalment order. That assertion is speculation which may or may not turn out to be correct. However, given the orders that I intend to make, if Slaveski fails to adhere to the instalment order, Rotstein will have the capacity to make application for the creditors petition to be listed for an early hearing.

FACTUAL FINDINGS

1. Returning to the present case, I have considered at length the evidence before me, the detailed submissions made by both parties, and had regard to the principles identified by Bromberg J in Rotstein.

2. On the evidence I am satisfied of the following:

   a)The Respondent made genuine attempts to repay his debt to the Applicant in the period immediately after the judgment debt was entered. For 7 months he voluntarily made $100 payments totalling $2,100, in circumstances where there was no Instalment Order in force.

   b)After applying for the First Instalment Order on 14 November 2016, and in circumstances where this Order did not have the effect of staying the bankruptcy proceedings, the Respondent made 12 weekly and consecutive repayments of $150 totalling $1,800 until 7 February 2017.

   c)Because he was unable to source funds from his landlady and in circumstances where his Centrelink entitlements as an aged pensioner were delayed, the Respondent defaulted on making payments in the period 7 February 2017 to 12 September 2017.

   d)In this period, he suffered a number of physical health problems, including chronic spinal injury and a broken arm resulting from a fall.

   e)After receiving a lump sum payment from Centrelink totalling $37,289.56, the Respondent used a substantial amount to repay a judgment debt to Tooheys Ltd and to his landlady for the cash advances he had received from her.

   f)Other than the present debt owed to the Applicant in these proceedings, the Applicant has one other liability owed to Credit Corp/Amex, being $75,000 which he is repaying at $10 per month.

   g)Since the presentation of this Creditor’s Petition on 25 October 2016 to the present date, no supporting Creditor has filed a Notice of Appearance in these proceedings to pursue the Respondent for any outstanding debts. This has been in circumstances where this matter has been published on the federal courts computerised website as well as on the National Personal Insolvency Index (“NPII”) for the past 14 months. I am content to infer that the Respondent’s other creditor/s has had ample opportunity to join in these proceedings and elected not to. 

   h)Since the reinstatement of the Instalment Order on 5 September 2017, the Respondent has resumed repaying $150 per week to the present date. These repayments have reduced the debt to $11,106 from an original debt of $17,506[6].

   i)On the basis that the Respondent continues to repay the balance of $11,106 by weekly instalments of $150, the debt will be extinguished in 74 weeks. On my calculation (and agreed by the parties) this works out to be 1 year, 5 months and 2 weeks from today. On present calculations, this would mean that the debt would be extinguished sometime in the middle of April 2019.

   j)Although the Respondent’s conduct in using his accrued Centrelink benefits to repay Tooheys Ltd and his landlady is advanced by the Applicant as having contravened the Parri Passu principle, I am prepared to accept the submission advanced on behalf of the Respondent that he is a lay person who is inexperienced in insolvency law and did not seek proper legal advice on how he could have better dealt with his “windfall” from Centrelink. An enquiry conducted on the federal courts database identifies these proceedings as the only one where the Respondent has ever been the subject of bankruptcy proceedings. Unlike others who have appeared in the Registrar’s Bankruptcy Lists, the Respondent cannot be considered a “repeat litigant” who would be familiar with this area of law.

   k)Although s 116(2) of the Bankruptcy Act 1966 (Cth) does not categorise Centrelink benefits as either “protected money” or “exempt money” from property which is divisible among creditors, and assuming some or all of the lump sum Centrelink monies could still have been recovered upon the making of a sequestration order, in my view it would be open to a Trustee to properly exercise his/her discretion not to seize monies from a bankrupt which comprises of his weekly aged pension of $355.09 which on any view is the Respondent’s sole source of subsistence income. In circumstances where the Trustee will undoubtedly spend considerable resources in attempting to recover these monies, I daresay there would be very little remaining funds in a bankrupt estate which would be available to any creditor.    

   l)There is also no evidence that the Respondent has engaged in any trade or commerce, and/or continued to trade whilst insolvent, so that to not make a sequestration order would prejudice the public interest. The fact that the Respondent is now aged 75, has significant health problems, and is now receiving the aged pension allows me to infer that the Respondent is unlikely to commence (or return to) an active life of commerce.

   [6] See Affidavit of Final Debt filed of Ralph Mills dated 12 December 2017, filed on-line.

1. Having regard to the aforementioned considerations, I consider it appropriate to exercise my discretion to grant the Respondent a lengthier adjournment.

2. As Mr Wilks has conceded on behalf of the Respondent that one option would be for the Creditor’s Petition to be brought back to the Court prior to its expiration to see if he is complying with the second Instalment Order, and where Ms Nash expressed concern that the Petition cannot be pursued after the debt falls below $5,000, I propose to adjourn these proceedings to a date which reconciles both these positions.

3. As I have previously extended the life of the Creditor’s Petition for the maximum 2 year period to 25 October 2018, I now adjourn the Creditor’s Petition to 16 August 2018, being 8 months from today. On my calculation and based on the weekly repayments of $150, the debt owing to the Applicant will still remain above the statutory threshold on that date.

4. Further, I grant liberty for the Applicant to restore the matter with 3 days’ notice to any Bankruptcy List presided by a Registrar should there be any default of the second Instalment Order in the intervening period before the next court date.

CONCLUDING REMARKS

1. The Respondent should be on notice that notwithstanding his continued compliance with the second Instalment Order made by Penrith Local Court on 5 September 2017, it may be the case that when the matter is back before a Registrar on 16 August 2018, the solicitor for the Applicant may still agitate for a sequestration order to be made against the Respondent’s Estate.

2. By way of a final observation and in circumstances where the presiding Registrar may accede to such an application, the Respondent may wish to consider exploring all options to raise sufficient funds to repay the balance of the remaining debt by the next court date if he wishes to avoid bankruptcy.

ORDERS MADE

1. Accordingly, I make the following orders:

   a)The Creditor’s Petition is listed on 16 August 2018 at 2 pm in the Law Courts Building at Queens Square.

   b)The Applicant have liberty to apply for the listing of the Creditor’s Petition for hearing with 3 days’ notice before a Registrar, should the Respondent fail to comply with the Instalment Order made by Penrith Local Court on 5 September 2017.

   c)Costs be reserved.

I certify that the preceding forty-four (44) paragraphs are a true copy of the reasons for judgment of Registrar Chuan Ng

Date: 23 March 2018