Fitzpatrick v Kidney - [2007] FMCA 1422

FEDERAL MAGISTRATES COURT OF AUSTRALIA

FITZPATRICK v KIDNEY

[2007] FMCA 1422

BANKRUPTCY – Annulment of sequestration order – true facts of the solvency or otherwise of the bankrupt – ability of bankrupt to pay his or her debts – protection of creditors – Court’s discretion – quarantining of sufficient funds to satisfy the disputed claim or claims.

Bankruptcy Act 1966 (Cth), ss.52, 153B

Re Cook (1946) 13 ABC 245
Re Frank;Ex parte Piliszky (1987) 16 FCR 396
Re Gollan; Ex parte Gollan (1992) 40 FCR 38
Re Sarina; Ex parte Council of the Shire of Wollondilly (1980) 43 FLR 163
Re Williams (1968) 13 FLR 10
Sarina v Council of the Shire of Wollondilly (1980) 48 FLR 372
Stankiewicz v Plata (2000) FCA 1185
Wong, Ex parte Wong v Robinson [1995] FCA 805

Applicant:

RAYMOND ARTHUR FITZPATRICK

Respondent:

TONY KIDNEY

File number:

CAG 28 of 2007

Judgment of:

Neville FM

Hearing date:

27 July 2007

Delivered at:

Canberra

Delivered on:

3 August 2007

REPRESENTATION

Solicitors for the Applicant:

Applicant in person

Solicitors for the Respondent:

Gillespie-Jones & Co

ORDERS

The applicant to deposit with the Court, within 28 days of today (3^rd August, 2007) an amount equal to the sum disputed by him as owing to Mr Kidney.
The applicant to deposit with the Court, within 28 days of today (3^rd August, 2007), the amount of 9722.07 owing to the Trustee, Mr Slaven.
An annulment to be granted to the applicant, but the operation of that order is stayed for 28 days, and is subject to the applicant either (a) paying the amount in dispute to the respondent, or (b) paying the amounts referred to and in accordance with Orders 1 & 2 above, or (c) making such arrangements with Mr Kidney and the Trustee as is acceptable to them.
Costs of this application are reserved.
The matter be stood over to 7 September 2007 at 9:00 am.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
CANBERRA

CAG 28 of 2007

RAYMOND ARTHUR FITZPATRICK

Applicant

And

TONY KIDNEY

Respondent

REASONS FOR JUDGMENT

In 1987, Fisher J in Re Frank;Ex parte Piliszky (1987) 16 FCR 396 at 398 said:
The matter arises in circumstances which are difficult to be certain are stated with complete accuracy as there was much vague and conflicting testimony in the bankrupt’s own case. There does appear to have been bad blood and extensive litigation between him and the judgment creditor over a number of years.
Respectfully, with the omission of reference to “bad blood”, I adopt his Honour’s comments in relation to the proceedings before me and their convoluted, protracted, antecedent and contemporaneous history.
With deliberate understatement, and having considered a number of judgments involving the present applicant, I should also add that brevity and conciseness in relation to matters before the Court have not always been a hallmark of proceedings involving the applicant.

In substance, there is only one issue before this Court for determination, that is, whether I should exercise the powers conferred pursuant to division 5 of the Bankruptcy Act 1966 (Cth), and in particular s.153B. That section empowers the Court to annul a sequestration order if it is satisfied that “[i]t ought not to have been made”.
A number of considerations arise in making such a determination. They include, perhaps primarily, “the true facts” of the solvency or otherwise of the bankrupt. This can include facts that have come to light since the making of the sequestration order. A range of relevant authorities in this regard are helpfully collected in the judgment of Spender J in Re Gollan; Ex parte Gollan (1992) 40 FCR 38. As well, an important decision to which reference is regularly made in recent judicial discussion of annulment applications is that of Gibbs J when his Honour was in the Federal Court of Bankruptcy in Re Williams (1968) 13 FLR 10.
I take the liberty of quoting one section of that judgment which, as I have said, continues to be cited regularly. His Honour says (at 23):
Section 154 (1) provides that where the Court is satisfied (inter alia) that a sequestration order ought not to have been made the Court may make an order annulling the bankruptcy. Under this section there are two matters which the Court has to consider, first, whether a sequestration order ought not to have been made, and then, if the Court is satisfied of that, whether in the exercise of the Court’s discretion the order should be discharged.
Gibbs J then refers to an earlier decision of the High Court which I need not cite here. He continues:
In determining the question whether the 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.
His Honour next refers to Re Cook (1946) 13 ABC 245, which has helpfully been cited to this Court in the submissions for the respondent. His Honour continued (also at 23):
If the Court is satisfied that the order ought not to have been made, it is not bound as a matter of course to annul the order, but must consider in the light of all the circumstances of the case whether the order ought to be annulled.
In this regard in the present proceedings, of singular importance is an affidavit sworn by the trustee, Michael Edward Slaven, sworn 20 July 2007 and filed with the Court on the same date. In his affidavit, to which I will return presently, the trustee says (par.16):
In my opinion it is likely that the bankrupt has sufficient cash assets to meet payment of creditors’ debts in full.
As just observed, this is a consideration and assessment of particular importance. I note and emphasise that the material that is contained in the trustee’s affidavit was not before Federal Magistrate Mowbray on 22 May 2007 when the sequestration order was made.
A second consideration in applications of this kind is the judicial determination of the meaning, under s.52 (2) of the Act, of what is comprehended by a bankrupt being “able to pay his or her debts”.
In this regard, I note the remarks of Deane J, when His Honour was a member of the Federal Court, in Re Sarina; Ex parte Council of the Shire of Wollondilly (1980) 43 FLR 163. His Honour held that the words “able to pay his debts” did not, without more, embrace or comprehend a requirement of “willingness” to pay them. This approach was affirmed on appeal in Sarina v Council of the Shire of Wollondilly (1980) 48 FLR 372. It is sufficient to record that the headnote from the decision of the Full Court of the Federal Court (Bowen CJ, Sweeney & Lockhart JJ) states (at 373) “The words “able to pay his debts” in s.52 (2) (a) of the Bankruptcy Act 1966 cannot be construed as “willing and able” to pay the debts.”
To state the obvious, there is clearly no willingness on the part of the applicant in these proceedings to pay any money to the respondent petitioning creditor. I should also note here that I am conscious of, and have had regard to, the decision of the Full Court of the Federal Court in Stankiewicz v Plata (2000) FCA 1185 delivered on 22 August 2000.
But the matter does not end there. A third consideration for this Court in the light of the authorities, some of which I have mentioned and some which are yet to come, and one directly related to the first consideration, is not simply or solely the true position of the solvency of the applicant but also and particularly the protection of creditors.
In this regard it is important to note the steps taken by the trustee, deposed to in paragraphs 8 and 11 of his affidavit, to which I have already made reference. In para.8 the trustee states:
On 6 June 2007 I registered caveats on each of the titles held by the bankrupt and Margaret Mary Fitzpatrick. I did not register a caveat on the title in respect of the property held jointly by the bankrupt and Tracy Ann Bogie.
In para.11 the trustee says:
On 20 June 2007 Ms Coggan of my office received a telephone call from the National Australia Bank Limited, Bankruptcy Department. Ms Coggan was advised that the bankrupt held an ‘I saver’ and a ‘flexi account’ with credit balances of $373,774.07 and $1,460.67 respectively. I placed a stop on the I saver account and have allowed the bankrupt to continue to use the flexi account.
A fourth consideration relates to the discretion to be exercised by the Court. This is a matter canvassed in a number of cases, including Stankiewicz v Plata, and in a particularly helpful way in a relatively early decision of Sackville J in Wong, Ex parte Wong v Robinson [1995] FCA 805. As in the cases of Re Gollan and Wong, so too in this case: there is significant evidence now before the Court, and importantly from the bankrupt’s trustee, that there are substantial assets, including a bank account with a large credit balance out of which a relatively modest sum owed to the petitioning creditor can be readily satisfied. As I have already indicated, the trustee has taken steps to prevent the dissipation of assets.
Before making final orders, I should note that it is necessary for me to consider, necessarily briefly, the plethora of allegations and general claims made by the applicant, including those of bias and lack of procedural fairness against FM Mowbray. The allegations and other contentions made by Mr Fitzpatrick are not supported by any relevant or credible evidence. They reflect poorly on him, in my respectful view.
Mr Fitzpatrick has thus far refused to make any arrangement in relation to payment of the outstanding debt and other costs. In these circumstances I propose following the course pursued by Sackville J in Wong. In that case his Honour indicated that he would grant an annulment of the bankruptcy. At the conclusion of his judgment, Sackville J said:
I propose to defer making these orders for fourteen days to give the applicant an opportunity, should she be so advised, to make appropriate arrangements for payment of outstanding fees, expenses and charges of the bankruptcy, and for payment of the balance of the debt due to the creditor. If, at the expiration of the fourteen days, appropriate arrangements are made, I would be prepared to make an order annulling the bankruptcy. If they are not, I shall make orders dismissing the application and ordering that the costs of the trustee and the creditor should be paid out of the applicant’s estate.
As I read His Honour, the orders made did not constitute a conditional annulment. Rather, they deferred or stayed, for a limited period, orders granting the annulment so as to enable the applicant to resolve, insofar as that was possible, the issues or amounts in dispute.
So here: I propose giving the applicant the opportunity, perhaps a last one, to make suitable arrangements for the quarantining of sufficient funds to satisfy the disputed claim or claims.

Conclusion

At the time when proceedings, by Mr Kidney against Mr Fitzpatrick, were before this Court in May 2007, there was no formal evidence of the kind now set out in the affidavit of the trustee, Mr Slaven, regarding the solvency of Mr Fitzpatrick. As I have already stated, the trustee deposes in para.16 of his affidavit:
In my opinion it is likely that the bankrupt has sufficient cash assets to meet payment of creditors’ debts in full.
Presumably by reference to cash assets, the trustee intends to refer to the credit balance in the “I Saver” account with the National Australia Bank and does not necessarily include in that phrase any of the real estate listed in the affidavit. But they are matters for the trustee. The trustee also deposes that the amount outstanding to discharge the fees and costs of the administration as at the date of the affidavit, and not taking into account the taxed costs of the petitioning creditor, amount to $9722.07.
While there remain defects in the statement of affairs prepared by Mr Fitzpatrick, and they are not insignificant matters, there is clearly a significant pool of assets out of which any of the sums claimed or disputed may be readily satisfied. The trustee has properly sought to protect the position of creditors so as to ensure that those assets are not dissipated.
While the orders I propose making may ultimately provide, in effect, only a temporary respite in the war of attrition between the parties, and equally only forestall briefly the satisfaction of a debt properly owing to Mr Kidney, it seems that, in accordance with the authorities cited, I should grant the application but to stay its operation on the terms prescribed in the following orders. In taking this course, it is unnecessary to deal with the other expansive, alternative orders sought by the applicant.
I venture to proffer the utterly pragmatic and seemingly self-evident proposition that the time and expense of the various litigious ventures of Mr Fitzpatrick significantly exceed the cost of the amounts in dispute. Once paid, he would be entitled as a matter of course to an annulment of the bankruptcy.
I have taken the liberty of providing copies of these orders in draft to the parties so that they may consider them. I am content to receive any comments on the form of the orders proposed. As is clear from the draft, the orders that I propose are as follows:
(1)That the applicant deposit with the Court within 28 days of today, 3 August 2007, an amount equal to the sum disputed by him as owing to Mr Kidney.
(2)The applicant deposit with the Court within 28 days of today,

3 August 2007, the amount of $9722.07 owing to the trustee, Mr Slaven.
(3)An annulment to be granted to the applicant that the operation of that order is to be stayed for 28 days and is subject to the applicant either:
a)paying the amount in dispute to the respondent; or
b)paying the amounts referred to and in accordance with order (1) and (2) above; or
c) making such arrangements with Mr Kidney and the trustee as is acceptable to them.
(4)I reserve the costs of this application.

I certify that the preceding twenty two (22) paragraphs are a true copy of the reasons for judgment of Neville FM

Associate: Hal Tilemann

Date: 23 August 2007