FEDERAL COURT OF AUSTRALIA
Frost v Sheahan [2008] FCA 1073
BANKRUPTCY – objections to automatic discharge – failure to disclose particulars of income – failure to make payments – principles governing Court orders under Bankruptcy Act 1966 (Cth) s 178 – principles relating to objection provisions – failure to comply substantially with grounds of objection – liability for sum withdrawn by the bankrupt from bank account – whether separate settlement could satisfy liability – whether sum paid for a particular purpose could be used by the payee for another purpose – discretionary reasons – possibility of dividend being paid to creditors as result of separate court proceeding
Held: application for withdrawal of objections dismissed
Bankruptcy Act 1966 (Cth) ss 5, 33A, 81, 139P, 139Q, 139S, 139U, 139V, 139W, 139WA, 139ZG, 149, 149A, 149B, 149C, 149D, 149F, 149G, 149H, 149J, 149K, 149N, 149Q, 152, 153B, 178
Family Law Act 1975 (Cth)
Federal Court RulesAscot Investments Pty Ltd v Harper (1981) 148 CLR 337 referred to
Cummings v Claremont Petroleum NL (1996) 185 CLR 124 referred to
Eshelby v Federated European Bank Ltd [1932] 1 KB 254 referred to
In re Condon; Ex parte James (1874) LR 9 Ch App 609 referred to
Frost v Sheahan [2005] FCA 1014 referred to
Inspector-General in Bankruptcy v Nelson (1998) 86 FCR 67 referred to
Macchia v Nilant (2001) 110 FCR 101 referred to
McGoldrick v Official Trustee in Bankruptcy (1993) 47 FCR 547 referred to
Prentice v Wood (2002) 119 FCR 296 referred to
Re Tyndall; Ex parte Official Receiver (1977) 30 FLR 6; 17 ALR 182
Re Clark (a bankrupt); Ex parte the trustee of the property of the bankrupt v Texaco Ltd [1975] 1 All ER 453; [1975] 1 WLR 559 referred to
Stevens and Stevens [2007] FamCA 680 referred to
Thomas v Donnelly [1997] FCA 1142 referred to
Van Reesema v Official Trustee in Bankruptcy (1983) 69 FLR 424
Wharton v Official Receiver in Bankruptcy (2001) 107 FCR 28ALLEN GORDON FROST v JOHN SHEAHAN, AS TRUSTEE OF THE BANKRUPT ESTATE OF ALLEN GORDON FROST
SAD 128 OF 2007BESANKO J
25 JULY 2008
ADELAIDE
IN THE FEDERAL COURT OF AUSTRALIA
SOUTH AUSTRALIA DISTRICT REGISTRY
SAD 128 OF 2007
IN THE MATTER OF THE BANKRUPT ESTATE OF ALLEN GORDON FROST
BETWEEN:
ALLEN GORDON FROST
ApplicantAND:
JOHN SHEAHAN, AS TRUSTEE OF THE BANKRUPT ESTATE OF ALLEN GORDON FROST
Respondent
JUDGE:
BESANKO J
DATE OF ORDER:
25 JULY 2008
WHERE MADE:
ADELAIDE
THE COURT ORDERS THAT:
1.The application be dismissed.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA
SOUTH AUSTRALIA DISTRICT REGISTRY
SAD 128 OF 2007
IN THE MATTER OF THE BANKRUPT ESTATE OF ALLEN GORDON FROST
BETWEEN:
ALLEN GORDON FROST
ApplicantAND:
JOHN SHEAHAN, AS TRUSTEE OF THE BANKRUPT ESTATE OF ALLEN GORDON FROST
Respondent
JUDGE:
BESANKO J
DATE:
25 JULY 2008
PLACE:
ADELAIDE
REASONS FOR JUDGMENT
On 4 September 2000 a sequestration…
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- AGLC
- Frost v Sheahan [2008] FCA 1073
- Case
- [2008] FCA 1073
- Decision Date
CaseChat Overview and Summary
Frost v Sheahan was a case before the Federal Court of Australia, involving an application by the applicant, a bankrupt accountant, seeking an order for the respondent to withdraw his objections to the applicant's discharge from bankruptcy. The applicant had previously made a similar application in 2004, which was dismissed by Lander J. The applicant argued that it was just and equitable for the respondent to withdraw his objections, as the applicant had cooperated with the trustee and provided necessary information about his income and assets. The respondent, however, objected to the discharge on the grounds that the applicant had not fully disclosed his assets and income.
The legal issues in this case centred on whether the Court should exercise its discretion under section 178 of the Bankruptcy Act 1966 to make an order that the respondent withdraw his objections to the applicant's discharge from bankruptcy. The Court had to consider the applicant's compliance with the provisions of the Act, particularly sections 139P, 139Q, 139S, and 139U, which deal with the bankrupt's obligation to provide information to the trustee and the liability for contributions. The Court also needed to examine the conduct of the applicant, including his attempts to divert funds from his bank account after his bankruptcy was made known to the bank.
The Court found that the applicant had not fully complied with his obligations under the Act. Despite the applicant's cooperation and provision of some information, the Court identified significant discrepancies in the applicant's accounts and his failure to provide complete and accurate details of his income and assets. The Court was not satisfied that the applicant had acted honestly and transparently in disclosing his financial situation. As a result, the Court dismissed the application, finding that it was not just and equitable to order the respondent to withdraw his objections to the applicant's discharge from bankruptcy.
The legal issues in this case centred on whether the Court should exercise its discretion under section 178 of the Bankruptcy Act 1966 to make an order that the respondent withdraw his objections to the applicant's discharge from bankruptcy. The Court had to consider the applicant's compliance with the provisions of the Act, particularly sections 139P, 139Q, 139S, and 139U, which deal with the bankrupt's obligation to provide information to the trustee and the liability for contributions. The Court also needed to examine the conduct of the applicant, including his attempts to divert funds from his bank account after his bankruptcy was made known to the bank.
The Court found that the applicant had not fully complied with his obligations under the Act. Despite the applicant's cooperation and provision of some information, the Court identified significant discrepancies in the applicant's accounts and his failure to provide complete and accurate details of his income and assets. The Court was not satisfied that the applicant had acted honestly and transparently in disclosing his financial situation. As a result, the Court dismissed the application, finding that it was not just and equitable to order the respondent to withdraw his objections to the applicant's discharge from bankruptcy.
Orders
Orders of the court
1. The application be dismissed.
Background
Background to the litigation
The applicant has previously made an application for an order under s 178. That application was made on 13 December 2004. It was dismissed by Lander J on 28 July 2005: Frost v Sheahan [2005] FCA 1014.Facts The applicant is an accountant. He has tertiary qualifications and considerable experience. He worked as an accountant both before and after he was made bankrupt. As I understand it, he continues to practise as an accountant. At the time of his bankruptcy, the applicant was the joint owner with his wife, Mrs Robyn Frost, of a residential property at Mayfield Crescent, Hallett Cove, South Australia (“Mayfield Crescent property”). He and Mrs Frost have since divorced. At the time of the applicant’s bankruptcy, the Mayfield Crescent property was subject to a number of mortgages and it remains subject to those mortgages. There is a first registered mortgage in favour of Australian Finance Company Pty Ltd which secures a debt of approximately $185,000. There are also two registered mortgages in favour of the applicant’s solicitor, Mr Paul Richardson, each securing a sum of $50,000 alleged to be unpaid legal fees owed by the applicant to Mr Richardson. At the time of his bankruptcy the applicant owned a serviced apartment at Marina Boulevard, Cullen Bay, Northern Territory (“Cullen Bay property”). The property was purchased by the applicant in September 1997 for a sum of $239,950 and it was part of a serviced apartment complex. The Cullen Bay property was subject to a mortgage in favour of the Australian and New Zealand Banking Group Limited (“ANZ Bank”) and a second mortgage in favour of Hurldeb Pty Ltd. The respondent claimed that the mortgage in favour of Hurldeb Pty Ltd was not a valid and enforceable mortgage. In 2004, the Cullen Bay property was sold and the ANZ Bank was repaid the debt owed to it, or at least the greater part of the debt. A relatively small amount was paid to Hurldeb Pty Ltd pursuant to an agreement between the respondent and that company. The applicant’s estate received a return from the sale of the Cullen Bay property of about $28,000. At the time of his bankruptcy the applicant had a bank account with the ANZ Bank and there was an arrangement between the applicant and the ANZ Bank whereby the rental income from the unit was paid into the account and the ANZ Bank would take its loan or mortgage repayments from the account. In early February 2001 the respondent contacted the ANZ Bank and advised it of the applicant’s bankruptcy and asked it to put in place arrangements which would prevent the applicant from using the bank account. For some reason that did not occur and between April and October 2003 the applicant diverted from the account to his own use sums totalling $10,560. The respondent made a claim for that sum from both the applicant and the ANZ Bank. He reached a settlement with the ANZ Bank which I will describe later. The applicant has and continues to carry out his practice as an accountant from premises at 252 Angas Street, Adelaide (“Angas Street property”). The registered proprietor of that property is Ambrose Baker and Partners (Holdings) Pty Ltd. There are two shares on issue in that company, one held by the trustee and the other held by Mrs Frost. The shareholders contend that the company owns the Angas Street property both legally and beneficially, whereas the applicant claims that the company holds the Angas Street property subject to the provisions of the Frost Family Trust and, as a result, the property is not part of the assets of the company.
Evidence
Evidence Before The Court
There is no time limit on the making of an assessment and it may be made after the bankrupt has been discharged from bankruptcy: s 139WA. The liability of a bankrupt to pay a contribution is dealt with in ss 139P and 139Q and the amount of the contribution to be paid is dealt with in s 139S. A bankrupt has an obligation to provide information to the trustee about his income and that is dealt with in s 139U. That section is in the following terms:139U Bankrupt to provide evidence of income(1)A bankrupt must, as soon as practicable, and in any event not later than 21 days, after the end of a contribution assessment period, give to the trustee:(a) a statement:(i)setting out particulars of all the income that was derived by the bankrupt during that contribution assessment period; and(ia)setting out particulars of all the income that was derived by each dependant of the bankrupt during that contribution assessment period; and(ii)indicating what income (if any) the bankrupt expects to derive during the next contribution assessment period; and(iii)indicating what income (if any) the bankrupt expects each dependant of the bankrupt to derive during the next contribution assessment period; and(b)such books evidencing the derivation of the income referred to in subparagraph (a)(i) as are in the possession of the bankrupt or the bankrupt can readily obtain.Penalty: Imprisonment for 6 months.(2)The particulars that a bankrupt is required to include in a statement given to the trustee under subparagraphs (1)(a)(i) and (ia) are all the particulars that are known to the bankrupt and any particulars that the bankrupt can readily obtain.(3)Without limiting the generality of paragraph (1)(b), the books that a bankrupt is required to give to the trustee under that paragraph in respect of a contribution assessment period include:(a)if the bankrupt received from his or her employer one or more pay slips or other documents evidencing salary or wages paid to him or her by that employer during that period—that document or each of those documents; and(b)any copy of a group certificate or payment summary (within the meaning of section 16-170 in Schedule 1 to the Taxation Administration Act 1953) in the possession of the bankrupt that relates in whole or in part to that period; and(c)any statement provided to the bankrupt by an ADI or other financial institution that shows periodic payments made during that period to an account kept by the bankrupt (either alone or jointly with any other person) with that institution; and(d)any notice of assessment issued to the bankrupt under the Income Tax Assessment Act 1936 in respect of a year of income in which that period is included; and(e)if the bankrupt is in receipt of a pension, allowance or other benefit under a law of the Commonwealth, of a State or of a Territory—any letter or other document sent or given to the bankrupt by the Department or authority that administers the legislation or scheme under which the benefit is provided.The term “books” is widely defined in s 5 of the Act.
Decision
Reasons for decision
BESANKO J
Section 178 of the Act is in the following terms:178 Appeal to Court against trustee’s decision etc.(1)If the bankrupt, a creditor or any other person is affected by an act, omission or decision of the trustee, he or she may apply to the Court, and the Court may make such order in the matter as it thinks just and equitable.(2)The application must be made not later than 60 days after the day on which the person became aware of the trustee’s act, omission or decision. The applicant contends that in the circumstances it is just and equitable that the respondent be ordered to withdraw his objections to the applicant’s discharge from bankruptcy. The respondent’s power to withdraw his objections to the applicant’s discharge from bankruptcy is contained in s 149J of the Act. That section is in the following terms:149J Withdrawal of objection(1)If at any time before a bankrupt is discharged the trustee withdraws the objection, the trustee must give the Official Receiver a notice of the withdrawal of the objection and give the bankrupt a copy of the notice.(3)The withdrawal takes effect at the beginning of the day when details of a notice under subsection (1) are entered in the National Personal Insolvency Index. The applicant has previously made an application for an order under s 178. That application was made on 13 December 2004. It was dismissed by Lander J on 28 July 2005: Frost v Sheahan [2005] FCA 1014.Facts The applicant is an accountant. He has tertiary qualifications and considerable experience. He worked as an accountant both before and after he was made bankrupt. As I understand it, he continues to practise as an accountant. At the time of his bankruptcy, the applicant was the joint owner with his wife, Mrs Robyn Frost, of a residential property at Mayfield Crescent, Hallett Cove, South Australia (“Mayfield Crescent property”). He and Mrs Frost have since divorced. At the time of the applicant’s bankruptcy, the Mayfield Crescent property was subject to a number of mortgages and it remains subject to those mortgages. There is a first registered mortgage in favour of Australian Finance Company Pty Ltd which secures a debt of approximately $185,000. There are also two registered mortgages in favour of the applicant’s solicitor, Mr Paul Richardson, each securing a sum of $50,000 alleged to be unpaid legal fees owed by the applicant to Mr Richardson. At the time of his bankruptcy the applicant owned a serviced apartment at Marina Boulevard, Cullen Bay, Northern Territory (“Cullen Bay property”). The property was purchased by the applicant in September 1997 for a sum of $239,950 and it was part of a serviced apartment complex. The Cullen Bay property was subject to a mortgage in favour of the Australian and New Zealand Banking Group Limited (“ANZ Bank”) and a second mortgage in favour of Hurldeb Pty Ltd. The respondent claimed that the mortgage in favour of Hurldeb Pty Ltd was not a valid and enforceable mortgage. In 2004, the Cullen Bay property was sold and the ANZ Bank was repaid the debt owed to it, or at least the greater part of the debt. A relatively small amount was paid to Hurldeb Pty Ltd pursuant to an agreement between the respondent and that company. The applicant’s estate received a return from the sale of the Cullen Bay property of about $28,000. At the time of his bankruptcy the applicant had a bank account with the ANZ Bank and there was an arrangement between the applicant and the ANZ Bank whereby the rental income from the unit was paid into the account and the ANZ Bank would take its loan or mortgage repayments from the account. In early February 2001 the respondent contacted the ANZ Bank and advised it of the applicant’s bankruptcy and asked it to put in place arrangements which would prevent the applicant from using the bank account. For some reason that did not occur and between April and October 2003 the applicant diverted from the account to his own use sums totalling $10,560. The respondent made a claim for that sum from both the applicant and the ANZ Bank. He reached a settlement with the ANZ Bank which I will describe later.
Ratio Decidendi
Legal Principle Established
Established by: BESANKO J
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