Free (Trustee), in the matter of Wu (Bankrupt) v Wu
[2023] FedCFamC2G 1169
•7 December 2023
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 2)
Free (Trustee), in the matter of Wu (Bankrupt) v Wu [2023] FedCFamC2G 1169
File number(s): SYG 1063 of 2023 Judgment of: JUDGE LAING Date of judgment: 7 December 2023 Catchwords: BANKRUPTCY - Trustee’s application for annulment of a sequestration order – where a subject of sequestration orders previously made had been deceased for years prior to the orders being made – application granted in part and associated orders made Legislation: Bankruptcy Act 1966 (Cth) ss 52, 153B, 244
Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth) r 17.05
Cases cited: Alfio Peter Bulic v Commonwealth Bank of Australia Limited [2007] FCA 307; (2007) 5 ABC(NS) 122
Gleeson v Storey [2008] FMCA 696
Owners Corporation Plan No RP012515 v Molnar [2023] FedCFamC2G 517
Division: Division 2 General Federal Law Number of paragraphs: 26 Date of hearing: 7 December 2023 Place: Sydney Counsel for the Applicant: Mr N Simpson Solicitor for the Applicant: Sarvaas Ciappara Lawyers ORDERS
SYG 1063 of 2023 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 2)
IN THE MATTER OF GUO QIANG WU, BANKRUPT
BETWEEN: STEWART FREE AS TRUSTEE IN THE BANKRUPT ESTATE OF GUO QIANG WU
Applicant
AND: JIAJUN WU
Respondent
ORDER MADE BY:
JUDGE LAING
DATE OF ORDER:
7 DECEMBER 2023
THE COURT ORDERS THAT:
1.The sequestration orders made on 14 July 2022, insofar as they relate to the estate of Guo Qiang Wu are annulled pursuant to s 153B(1) of the Bankruptcy Act 1966 (Cth).
THE COURT NOTES THAT:
2.The applicant trustee, through his Counsel, undertakes to the Court that he will not seek to recover any costs, charges or expenses relating to this application, or arising from his appointment under the sequestration order, from the estate of Guo Qiang Wu without the consent of those responsible for that estate or the leave of the Court.
THE COURT FURTHER ORDERS THAT:
3.The parties and any executor or other person responsible for the administration of the deceased estate of Guo Qiang Wu have liberty to apply to revoke or vary these orders.
4.The applicant is to use reasonable endeavours to effect service of these orders upon the respondent and Xiu Ling Xie.
5.The applicant must serve a copy of these orders upon The Owners of Strata Plan 91204 and the Official Receiver within 2 days.
6.The proceedings be adjourned until 10.00 am on 1 July 2024 for directions.
Note: The form of the order is subject to the entry in the Court’s records.
Note: The Court may vary or set aside a judgment or order 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).
EX TEMPORE REASONS FOR JUDGMENT
(Revised from transcript)JUDGE LAING:
Before the Court is an application brought by Stewart Free (Trustee) as Trustee in the Bankrupt Estate of Guo Qiang Wu (Mr Wu). The Trustee seeks that an order be made for annulment of a sequestration order made on 14 July 2022 pursuant to s 153B(1) of the Bankruptcy Act 1966 (Cth) (Act). The Trustee also seeks a costs order against Mr Wu’s son, the respondent, although seeks for that issue to be dealt with at a later stage in these proceedings.
The expressed basis of the application arises from circumstances in which it has been discovered that Mr Wu was deceased at the time that the sequestration order was made in relation to his estate.
BACKGROUND
The background to this matter, for the purposes of the orders made today, is set out in affidavits made by Solveig Hu on 30 June 2023, the Trustee on 8 August 2023 and Rong Fu on 30 November 2023 and 7 December 2023.
Sequestration orders were made on 14 July 2022 in relation to the estates of both Mr Wu and his wife, Ms Xiu Ling Xie (Ms Xie). The Trustee was appointed as trustee over the bankrupt estates on the same date.
Prior to this, on 28 April 2021, proceedings were commenced in the Local Court of NSW by The Owners of Strata Plan 91204 (Owners Corporation) seeking to recover unpaid strata levies in relation to a property in respect of which Mr Wu and Ms Xie were registered as joint tenants (Property). On 11 June 2021, default judgment was entered in those proceedings. Enforcement was unsuccessfully attempted by way of a writ for the levy of property. A bankruptcy notice was subsequently issued and posted to Mr Wu and Ms Xie at the Property. A creditor’s petition was subsequently filed on 18 February 2022 in proceedings SYG 230 of 2022.
I do not propose to set out in these reasons the circumstances in which sequestration orders were made in detail. This is because what is said by the Trustee about those circumstances contains allegations in relation to the respondent. The respondent has not been successfully served with these proceedings to date and therefore has not been given the opportunity to respond to those allegations.
Suffice to say that at some time this year, the Trustee learned that Mr Wu died on 24 November 2017. A death certificate is in evidence confirming this, at Annexure E, page 57, to the Trustee’s affidavit dated 8 August 2023.
The Trustee commenced the current proceedings on 3 July 2023. In addition to annulment of the sequestration order relating to Mr Wu, the Trustee originally sought an order appointing himself “as Trustee of the bankrupt estate of Guo Qiang Wu to the administrator of deceased estate of Mr Guo Qiang Wu pursuant Part XI of the Act”. At the first court date on 9 August 2023, the matter was listed for hearing on 19 September 2023. Prior to the hearing, an issue regarding the Trustee’s standing to apply for the second of the orders sought was raised. The Trustee sought and was granted leave to file an amended application, which was filed on 14 September 2023. That is the application that is moved upon by the Trustee.
Orders were subsequently sought and made in October 2023 adjourning the matter whilst attempts at service were made by the Trustee. Due to difficulties with service, on 9 November 2023, orders were made listing the matter for hearing today in relation to the application for annulment and/or a then proposed alternative order setting aside the sequestration order, only. The Trustee no longer seeks, in the alternative, any order setting aside the sequestration order. The Trustee seeks that the costs application in respect of the respondent be heard some time in the future, after 30 June 2024, to permit further investigations to take place to determine the whereabouts of the respondent and attempt service.
The Trustee relies upon the affidavits of Rong Fu regarding the efforts that have been made to serve the respondent and to draw the proceedings to his attention and to the attention of his mother, Ms Xie. They also detail steps taken to draw these proceedings to the attention of the Owners Corporation, which is said to be the only known creditor.
On 30 November 2023, a notice to creditors of annulment application (Form B11) was filed. Rong Fu’s affidavit dated 7 December 2023 indicates that this was served upon the Owners Corporation on the same date.
LEGISLATION AND PRINCIPLES
Section 153B of the Act provides:
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.
(3)The trustee must, before the end of the period of 2 days beginning on the day the trustee becomes aware of the order, give to the Official Receiver a written certificate setting out the former bankrupt's name and bankruptcy number and the date of the annulment.
Penalty: 5 penalty units.
Note: See also section 277B (about infringement notices).
(4) Subsection (3) is an offence of strict liability.
Note: For strict liability, see section 6.1 of the Criminal Code.
The Trustee relied upon the principles articulated in Alfio Peter Bulic v Commonwealth Bank of Australia Limited [2007] FCA 307; (2007) 5 ABC(NS) 122 at [12] per Tracey J as follows:
12. Section 153B(1) of the Act relevantly provides that:
“If the Court is satisfied that a sequestration order ought not to have been made …the Court may make an order annulling the bankruptcy.”
Section 153B(1) and its predecessors have been considered in many decisions of this and other Courts. These authorities establish a number of relevant propositions. They are:
(1)An order can be made under s 153B(1) of the Act notwithstanding that the applicant has been discharged from bankruptcy; Re Oates; 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”: Re Papps; 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; Re Raymond; 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.
Rule 17.05 of the Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth) relevantly provides:
Setting aside or varying judgments or orders
…
(2)The Court or a Registrar may vary or set aside a judgment or order after it has been entered if:
(a) it was made in the absence of a party; or…
(f) the party in whose favour it was made consents; or
(g) there is a clerical mistake in the judgment or order; or
(h)there is an error arising in the judgment or order from an accidental slip or omission.
CONSIDERATION
I accept that it is clear enough that the sequestration order ought not to have been made in respect of the estate of Mr Wu. Mr Wu was deceased at the time that the bankruptcy notice and creditor’s petition were purportedly served. He was also deceased at the time that the Local Court proceedings were commenced, resulting in the default judgment in those proceedings that was relied upon by the Owners Corporation for the purposes of the bankruptcy notice and creditor’s petition.
My acceptance that the sequestration order ought not to have been made should not be taken as any criticism of the Registrar who made it. Whilst, for the reasons I have given, I consider it undesirable to make detailed findings at this stage regarding the reasons that the Registrar was unaware that Mr Wu was deceased at the time that the order was made, suffice to say that it appears that the information presented to the Registrar differed in significant respects from the evidence that is currently before the Court.
Full disclosure of Mr Wu’s financial affairs is not available to the Court. Whilst it seems that Mr Wu’s estate may be possessed of some property, the current extent of this is unclear. This is in circumstances where it appears that investigations were ongoing when Mr Wu’s deceased status was discovered. However, the Trustee accepts that there is no need for the Court to enquire as to the solvency position of Mr Wu, given that the failure to, on hindsight, prove the matters necessary under ss 52 and 244 of the Act would have been fatal to any application made under those provisions.
I have been directed to limited authorities on the issue. I have located a decision of Judge Mansini in Owners Corporation Plan No RP012515 v Molnar [2023] FedCFamC2G 517 (Molnar), in which her Honour dealt with an application for an extension of time for review of a Registrar’s decision in circumstances where the person subject to the sequestration order had been deceased at the time the sequestration order had been made. However, that application was of a different nature to the present. It was brought by the executor of the deceased estate, after a substantial and unexplained delay. It sought review of the sequestration order. Relief in the form of annulment (as distinct from setting aside the sequestration order) did not follow from the application that had been made in that case and the requirements for such an application had not been met. The application was opposed by the trustee in that case.
I consider this case to be more analogous to another case that I have located, which is a decision of Smith FM in Gleeson v Storey [2008] FMCA 696 (Gleeson). That case concerned a trustee’s application for annulment of a sequestration order. It was brought by the trustee in circumstances where they had learned after their appointment that there had been defects in the service of proceedings upon the person subject to the sequestration order, and that the underlying debt had not in fact been owed. In other words, as in the present case, the annulment application was brought by the trustee in circumstances where the trustee accepted that the sequestration order ought not to have been made.
At [7]-[10], his Honour considered:
7.The Trustee, through his solicitor, indicates to the Court, as has been indicated to Mr Storey, that he does not intend to recover his expenses of the administration nor of this application from Mr Storey. This was, in my opinion, a very appropriate position to take, since it would appear that the Trustee should probably be looking for payment of his expenses from the OSR. The arrangements between them concerning this are not disclosed in the evidence before me.
8.On all the evidence before me I am satisfied in terms of s.153B(1) of the Bankruptcy Act 1966 (Cth) that the sequestration order ought not have been made, both by reason of Mr Storey having an apparent answer to the land tax assessment, and also imperfections in service on him of the bankruptcy processes.
9.I am also satisfied that the Trustee's investigations have revealed that he is solvent, and there is no public interest in maintaining his bankruptcy. I therefore consider the Court should exercise its discretion under s.153B(1) to annul the bankruptcy.
10.The automatic effect of such an order would be to leave Mr Storey exposed to the costs of the Trustee's administration, pursuant to s.154(1)(c). However, in the light of the position taken by the Trustee, I invited an undertaking to be given to the Court not to pursue his entitlement under s.154 without the prior leave of the Court. Such an undertaking has been offered, and I will receive it.
At [11]-[12], his Honour considered the position of the person whose estate had been sequestered as follows:
11.Mr Storey appears to have been willing to sit back and allow the Trustee to solve the situation. He has not himself made an application to the Court to set aside the sequestration order made by the Registrar, as an alternative to annulment (see Pattison v Hadjimouratis (2006) 155 FCR 226). I do not think it appropriate for the Court itself to consider that alternative on its own motion, particularly in the absence of the petitioner joined as a party to the present application.
12.If Mr Storey takes the view that it would be preferable for the Court to make an order setting aside the sequestration order, rather than annulling his bankruptcy, he will be able to apply to vary or revoke the present orders, to substitute a setting aside order, and to obtain any consequential orders in relation to the costs of the petition proceedings. I shall reserve liberty to make such an application. Whether he should make an application is a matter upon which Mr Storey should obtain his own advice.
A distinction in the present case is that the application has not been able to be effectively served in relation to Mr Wu. That is because Mr Wu is deceased. Searches for probate applications and applications for letters of administration have yielded no results. It is unknown who the executor or administrator of his estate, or its beneficiaries, are. It seems to me that adopting a similar approach to that which was adopted in Gleeson would be appropriate in this case. The application has been brought by the Trustee. Evidence has been given that the Owners Corporation is presently the only known creditor, is on notice of the application and has taken no steps to oppose the application.
The Trustee has provided the Court with an undertaking to the effect of that recorded in the orders made in Gleeson. He has foreshadowed wishing to consider his position on costs in the coming months including whether an application is to be pressed against the respondent and/or whether a further application ought to be made seeking his costs from the deceased estate. The undertaking in Gleeson does leave open the potential for a further costs application to be made, or rather for leave to be sought in this regard. However, on the basis of the undertaking, the Trustee will not be entitled to his costs from Mr Wu’s estate without consent, or without some further application being made and succeeding before this Court.
Having regard to these matters, I accept the Trustee’s submission that an order for annulment ought to be made. Similarly to in Gleeson, if an executor or other person responsible for the administration of Mr Wu’s estate is ultimately located and considers that an order setting aside the sequestration order would be more appropriate, then it will be open to them to apply for leave to seek revocation or variation of the orders made today. As in Molnar, however, delay in doing so may count against such an application.
CONCLUSION
For the foregoing reasons, I will make an order for annulment and associated orders.
I will also make procedural orders regarding the outstanding issue of costs and related matters.
I certify that the preceding twenty-six (26) numbered paragraphs are a true copy of the Reasons for Judgment of Judge Laing. Deputy Associate:
Dated: 7 December 2023
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