El-Khoury v Senator as Trustee of the Bankrupt Estate of El-Khoury
[2021] FedCFamC2G 130
•5 October 2021
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 2)
El-Khoury v Senator as Trustee of the Bankrupt Estate of El-Khoury [2021] FedCFamC2G 130
File number(s): SYG 1642 of 2021 Judgment of: JUDGE MANOUSARIDIS Date of judgment: 5 October 2021 Catchwords: BANKRUPTCY – application for annulment of bankruptcy made pursuant to a sequestration order when the bankrupt was already in bankruptcy pursuant to a debtor’s petition debtor had presented – whether in those circumstances the sequestration order ought not to have been made – sequestration order ought not to have been made because the debt on the basis of which it was made was extant at time bankrupt presented debtor’s petition – no discretionary reasons for not annulling bankruptcy arising from the making of sequestration order. Legislation: Bankruptcy Act 1966 (Cth) s 153B(1) Cases cited: Alfio Peter Bulic v Commonwealth Bank of Australia Limited [2007] FCA 307
Clyne v Deputy Federal Commissioner of Taxation [1984] HCA 44; (1984) 154 CLR 589
Re Frank; Ex parte Piliszky (1987) 16 FCR 396
Division: Division 2 General Federal Law Number of paragraphs: 16 Date of hearing: 5 October 2021 Place: Sydney The Applicant: Appeared in person, assisted by Ms J Khoury, by telephone The Respondent: No appearance by, or on behalf of, the respondent ORDERS
SYG 1642 of 2021 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 2)
IN THE MATTER OF ROMEO EL-KHOURY
BETWEEN: ROMEO EL-KHOURY
Applicant
AND: EZIO SENATOR AS TRUSTEE OF THE BANKRUPT ESTATE OF ROMEO EL-KHOURY
Respondent
ORDER MADE BY:
JUDGE MANOUSARIDIS
DATE OF ORDER:
5 OCTOBER 2021
THE COURT ORDERS THAT:
1.The bankruptcy of Romeo El-Khoury that came into effect by the making of a sequestration order on 9 September 2014 is annulled.
Note: The form of the order is subject to the entry in the Court’s records.
Note: This copy of the Court’s Reasons for judgment may be subject to review to remedy minor typographical or grammatical errors (r 17.05(2)(g) Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 17.05 Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth).
REASONS FOR JUDGMENT
(Revised from transcript)
Before the Court is an application by Mr Romeo El-Khoury for an order under s 153B(1) of the Bankruptcy Act 1966 (Cth) (Act) that the bankruptcy that resulted from the making of a sequestration order by this Court on 9 September 2014 be annulled. Subsection 153B(1) of the Act provides:
If the Court is satisfied that a sequestration order ought not to have been made … the Court may make an order annulling the bankruptcy.
The relevant facts are as follows. On 12 May 2014 Mr El-Khoury presented a debtor’s petition with the Australian Financial Security Authority (AFSA), and he became a bankrupt effective from that date (first bankruptcy). Mr Samuel Pearson, of Deloitte Financial Advisory Proprietary Limited, was appointed trustee in bankruptcy of Mr El-Khoury’s estate.
On 9 September 2014 this Court made a sequestration order against the estate of Mr El-Khoury (second bankruptcy) on the petition of the Commonwealth Bank of Australia (Bank). The circumstances in which that occurred are set out in a letter dated 17 March 2015 from the Bank’s lawyers to AFSA. The letter made a number of statements, including the following:
We refer to your email of 18 December 2014 to Azeem Sharif, an employee of the trustees in bankruptcy appointed by the Court, David Mansfield and Ezio Senatore (Deloitte). We understand that the Australian Financial Security Authority (AFSA) has advised Deloitte that Romeo presented a debtor’s petition on 13 May 2014 [sic] and entered bankruptcy before the Bank obtained its sequestration orders.
Since the date of your email, it has also come to the our [sic] client’s attention (by having conducted its own further searches) that Daniel also presented a debtor’s petition on 7 July 2014, prior to the Bank obtaining sequestration orders in relation to his estate. Please see attached a recent National Personal Insolvency Index search indicating that the Official Trustee is administering Daniel’s estate.
Our instructing officer from the Bank was not aware of either of the debtor’s petitions before the application was made for the sequestration orders. We note that Daniel and Romeo’s debtor’s petitions were lodged using a variation of their surname that was not known to the Bank.
Internal investigations within the Bank that have occurred since 18 December 2014 indicate that the Bank was notified of Romeo’s debtor’s petition but due to an administrative error, that information was not available to our instructing officer. However, we are instructed that the Bank, has not been notified or advised by AFSA of Daniel’s debtor’s petition. Please confirm if and when such a notification has been issued.
It appears that AFSA suggested to the Bank that it take steps to annul the second bankruptcy. By the letter from its lawyers dated 17 March 2015 to which I have referred, the Bank said it could not be compelled to make such application, but proposed that the first and second bankruptcies run concurrently. The Bank’s lawyers said as follows:
Our client has already incurred a substantial shortfall in the amount owed to it by the El Khoury family, including Daniel and Romeo. We have been advised by the trustees that the Bank is the largest creditor in each of the estates, and that there is little prospect of there being any distribution to creditors.
Our client wishes to avoid incurring any further irrevocable costs, including the cost of making any application for an annulment. While we do not accept that there is any basis on which the Bank can be compelled to make such application, our client agrees that a resolution to the current position needs to be achieved.
In these circumstances, our client suggests that AFSA immediately take steps to replace the Official Trustee, under the debtor’s petitions for Romeo and Daniel, with Mr Mansfield and Mr Senatore. The two bankruptcies for each of these individuals may then be run concurrently to avoid any duplication of costs and to facilitate the realisation of the water licence.
Further, and to ensure there is no material difference for creditors generally, our client would be willing to agree with Deloitte not to enforce the cost orders in its favour made in respect of the sequestration orders for Romeo and Daniel.
On 14 June 2017 Mr Pearson sent an email to Mr El-Khoury in which Mr Pearson identified the two bankruptcies. Mr Pearson identified the type of bankruptcy, the bankruptcy number and the start dates for each of the two bankruptcies. Mr Pearson’s email noted that the first bankruptcy had ended on 14 May 2017, but that the second bankruptcy was due to end three years and one day from when a statement of affairs is lodged. After noting the two bankruptcies, Mr Pearson stated as follows:
The Australian Financial Security Authority has advised that the creditor’s petition ought to be annulled given that your creditors were captured in your debtor’s petition.
We have brought this to the attention of Henry Davis York, who acted for the Commonwealth Bank of Australia in the proceedings. At this point in time, we are not aware of the status of the annulment and it may be a matter you wish to follow up.
Given that no SOA has been received on your creditor’s petition, there is currently no end date in that particular bankruptcy administration.
On 11 October 2017 Ms Connor from the office of Mr Pearson sent an email to Mr El-Khoury. In that email she referred to the email Mr Pearson had sent on 14 June 2017, and then stated (emphasis in original):
We also have conformation [sic] from the bank that the CBA will not apply to the court for the annulment of the Creditors Petition bankruptcy however they will not object to the annulment should an application be made.
Given the circumstances it would be wise that you discuss the situation with a lawyer and begin the process of applying to the court for the annulment of the second bankruptcy.
That is where the narrative, as revealed by the evidence, ends before Mr El-Khoury commenced this proceeding. Mr El-Khoury commenced this proceeding by filing an application on 31 August 2021. That application was supported by an affidavit in which Mr El-Khoury set out the circumstances in which he presented the debtor’s petition, and he annexed the correspondence to which I have referred.
The matter came before me on 21 September 2021. Mr El-Khoury, who is not legally represented, appeared by telephone with the assistance of his sister, Ms Khoury. I made orders listing the application for an annulment for hearing before me to today, and I also directed that Mr El-Khoury serve on the current trustee, Mr Senatore, the orders I made on that day, and I directed Mr El-Khoury to confirm what he had told me at the directions hearing, namely, that he had incurred no debts between the two dates on which he had been made bankrupt.
Mr El-Khoury served the orders I made on 21 September 2021 on Mr Senatore by email, being the means by which I directed that my orders be served on Mr Senatore, and Mr El-Khoury filed an affidavit confirming service. In that affidavit Mr El-Khoury also deposes as follows:
I, Romeo El-Khoury confirm that i [sic] have incurred no debts between the two dates on which I was made bankrupt – BN 2246 of 2014/6 on the 12th May 2014 to 14th May 2017 and BN 4206 of 2014/2 on the 9th September 2014 to present. I have incurred no debts.
At the hearing today the evidence was formally read. Mr El-Khoury informed me that he had a telephone conversation with Mr Senatore, and Mr Senatore said he had no objection to the annulment order being made. That has not been given on oath, but the trustee has not filed an appearance, and he has not appeared today to oppose the making of the order for annulment.
I then turn to the principles that govern applications for annulment. These have been conveniently set out by Middleton J in Alfio Peter Bulic v Commonwealth Bank of Australia Limited:[1]
[1] Alfio Peter Bulic v Commonwealth Bank of Australia Limited [2007] FCA 307, at [12]
(1)An order can be made under s 153B(1) of the Act notwithstanding that the applicant has been discharged from bankruptcy; ReOates; ex parte Deputy Commissioner of Taxation (1987) 17 FCR 402.
(2)An applicant who seeks an annulment of his or her bankruptcy “carries a heavy burden”. It is incumbent on an applicant “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”: RePapps; Ex parte Tapp (1997) 78 FCR 524 at 531.
(3)In determining whether or not a sequestration order “ought not to have been made” the Court is not confined to a consideration of whether the order should have been made on the facts known to the Court at the time at which it was made. The Court must take account of facts, known at the time at which the sequestration order was made and at which it determines an annulment application, even if those facts were not before the Court at the time at which the sequestration order was made: Boles v Official Trustee in Bankruptcy (2001) 183 ALR 239 at 243; ReRaymond; ex parte Raymond (1992) 36 FCR 424 at 426.
(4)A sequestration order “ought not to have been made” if, on the facts known at the time of the annulment application, the Court would have been bound not to make the sequestration order: Re Frank; ex parte Piliszky (1987) 16 FCR 396.
(5)The Court will be so satisfied if it is established that the debtor was not, at the time the sequestration order was made, indebted to the petitioning creditor: Re Deriu (1970) 16 FLR 420 at 422.
(6)If the Court is so satisfied, it is not precluded from annulling the bankruptcy because the bankrupt had not sought to have the default judgment set aside or failed to oppose the creditor’s petition or failed to seek a review of the sequestration order: Re Raymond; ex parte Raymond (1992) 36 FCR 424 at 426.
(7)The power conferred on the Court by s 153B(1) is discretionary in nature. Even if persuaded that the sequestration order ought not to have been made, the Court can, in appropriate circumstances, decline to annul the bankruptcy: Boles v Official Trustee in Bankruptcy (2001) 183 ALR 239 at 243.
(8)Considerations which may have a bearing on the exercise of discretion include unexplained delay in the making of the application, whether or not the applicant is solvent, whether or not the applicant has made full disclosure of his or her financial affairs and a failure by the bankrupt to oppose the creditor’s petition and attend the hearing at which the sequestration order was made: Re Williams (1968) 13 FLR 10 at 24-5; Boles at 247; Re Papps; ex parte Tapp (1997) 78 FCR 524 at 531; Rigg v Baker [2006] FCAFC 179 at [79]; Cottrell v Wilcox [2002] FCA 1115 at [7]. Additional considerations are collected in D. A. Hassall, “Annulment of Bankruptcy and Review of Sequestration Orders” (1993) 67 ALJ 761 at 766.
The first question is whether, given Mr El-Khoury’s having become bankrupt on his own petition from 12 May 2014, the sequestration order that was made on 9 September 2014 “ought not to have been made”. That turns on whether the debt on the basis on which the sequestration order was made was a debt that existed at the time Mr El-Khoury went into bankruptcy on his own petition with effect on 12 May 2014. That is so because in Clyne v Deputy Federal Commissioner of Taxation, the High Court held that a petitioning creditor who purports to rely on the debt which existed at the time of a previous bankruptcy is no longer a creditor. The High Court said:[2]
The Act does not expressly state whether a court may proceed to make a sequestration order on a creditor's petition when it appears on the hearing of the petition that the debtor has already become bankrupt by virtue of the presentation of his own petition. Of course if an undischarged bankrupt has, after the date of the bankruptcy, contracted new debts, a second sequestration order may be made, and s.59 of the Act will then become applicable. The Act, however, is silent as to what is to be done with a creditor's petition that is founded on a debt incurred before the date of the presentation by the debtor of his own petition. It seems to us for a number of reasons that it is not possible for the court in those circumstances to make a sequestration order while the bankruptcy which resulted from the acceptance of the debtor's petition continues to exist. Before the court can make a sequestration order, it must be satisfied that “the debt or debts on which the petitioning creditor relies is or are still owing” - s.52(1)(c). But since the debtor was already bankrupt when the petition came to be heard, the remedies against the person and property formerly available to the Deputy Commissioner had been taken away and there was substituted a right to prove against the estate which had become vested in Mr Andrew as trustee: see In re Thomas. Ex parte Commissioners of Woods and Forests (1888) 21 QBD 380, at p 383. At that time the Deputy Commissioner “was not a mere creditor. (He) was a creditor whose claim was in proof. (His) claim was no longer a mere right of action for a debt. (He) could no longer have maintained an action as for a debt. The debt had been, at any rate provisionally, merged in an equitable execution ...”: see In re Higginson & Dean. Ex parte Attorney-General (1899) 1 QB 325, at p 333; Ex parte Trustee of the Property of Cork (1932) 5 ABC 1, at pp 6-7; Re Cole; Ex parte Richards (1966) 9 FLR 190, at p 191. Amounts which were owed by a debtor at the date of the bankruptcy may, notwithstanding his bankruptcy, still be described as debts, and the Act refers to them as such: see, e.g., ss.58(3), 84(1), 85(1), 86(1), 153(1), 154(1)(b). They are “debts” from which the bankrupt is not released until he is discharged from bankruptcy: s.153. However in our opinion they are no longer debts "still owing" within the meaning of s.52(1)(c). Although, as was rightly observed in the Federal Court, one dictionary meaning of “owing” is “that is yet to be paid”, the word connotes a sense of obligation to make the payment. The effect of the bankruptcy however is that the debtor is no longer obliged to pay his creditors; indeed he is disabled from doing so. If he offered payment they could not safely accept it; their right is a right of proof against the estate.
[2] Clyne v Deputy Federal Commissioner of Taxation [1984] HCA 44; (1984) 154 CLR 589, at [4]
There is no direct evidence that the debt on which the Bank relied for the making of the sequestration order on 9 September 2014 existed on the day in which the first bankruptcy took effect. On the material before me, however, I am satisfied that the debt was not one that Mr El-Khoury contracted after the commencement of the first bankruptcy. First, there is the affidavit to which I have already referred in which Mr El-Khoury deposed that he has incurred no debts after the commencement of the first bankruptcy. I accept that evidence. Second, the Bank’s lawyers, in their letter of 17 March 2015 to which I have referred, all but expressly stated that the debt owed to the Bank was a debt that had accrued before 12 May 2014. That is manifested by the proposal the Bank’s lawyers made for the concurrent administration of the two bankruptcies, and also by the Bank’s lawyers not asserting that the second bankruptcy was not liable to be annulled.
Thus, had the facts been known to this Court at the time it made the sequestration order on 9 September 2014, that is to say, that Mr El-Khoury had been made bankrupt on his own petition on 12 May 2014, the Court would have been bound not to make the sequestration order (see Re Frank; Ex parte Piliszky).[3] For that reason, the pre-condition for the making of an order annulling the second bankruptcy as provided for by s 153B(1) of the Act has been satisfied.
[3] Re Frank; Ex parte Piliszky (1987) 16 FCR 396
Next, I consider whether there are any discretionary factors against my making an order annulling the second bankruptcy. There is no evidence of Mr El-Khoury’s assets and liabilities. Mr El-Khoury has been in bankruptcy, however, since 12 May 2014; and there is his affidavit to which I have referred in which he deposes that he has incurred no debts since 12 May 2014. There is, therefore, no need for there to be any further evidence of his assets and liabilities. Further, he has been automatically discharged from the first bankruptcy, which indicates there are no reasonable grounds for believing there exist some assets available to his creditors. Finally, the trustee appointed pursuant to the making of the sequestration order has not opposed the making of an order annulling the second bankruptcy.
In all the circumstances, therefore, I am satisfied the second bankruptcy should be annulled.
I certify that the preceding sixteen (16) numbered paragraphs are a true copy of the Reasons for Judgment of Judge Manousaridis. Associate:
Dated: 11 October 2021
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