Greater Building Society Limited v Hill
[2012] FMCA 431
•8 May 2012
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| GREATER BUILDING SOCIETY LIMITED v HILL & ORS | [2012] FMCA 431 |
| BANKRUPTCY – Whether court should direct the Official Receiver to accept a debtor’s petition where he is one of the joint creditors – what should be the appropriate date for the commencement of the bankruptcy and relation back. |
| Bankruptcy Act 1966 (Cth), ss.53AA, 55(3B), 55(3C), 55(3D), 66, 115, 188, 194 |
| Australian Cooperative Foods Limited v Leung [2006] FMCA 695 Official Receiver of the Bankruptcy District of Victoria v Walia (1997) 79 FCR 299 |
| Applicant: | GREATER BUILDING SOCIETY LIMITED ACN 087 651 956 |
| First Respondent: | KENNETH MICHAEL HILL |
| Second Respondent: | MATTHEW JOSEPH SOMERS |
| Third Respondent: | JUSTIN ANTHONY O’BRIEN |
| File Number: | SYG 467 of 2012 |
| Judgment of: | Raphael FM |
| Hearing date: | 8 May 2012 |
| Date of Last Submission: | 8 May 2012 |
| Delivered at: | Sydney |
| Delivered on: | 8 May 2012 |
REPRESENTATION
| Counsel for the Applicant: | Mr M J Smith |
| Solicitors for the Applicant: | Sparke Helmore |
| Counsel for the Third Respondent: | Ms L Thomas |
| Solicitors for the Third Respondent: | UTR Law |
ORDERS
The court directs the Official Receiver to accept the debtor’s petition filed on 12 April 2012.
The applicant’s costs of the creditor’s petition and of this application be paid from the estate of the bankrupt in the same priority as they would have been paid had there been a successful creditor’s petition.
The date of the commencement of the bankruptcy, and the time to which the bankruptcy has relation back; shall be 22 February 2012.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SYG 467 of 2012
| GREATER BUILDING SOCIETY LIMITED ACN 087 651 956 |
Applicant
And
| KENNETH MICHAEL HILL |
First Respondent
| MATTHEW JOSEPH SOMERS |
Second Respondent
| JUSTIN ANTHONY O’BRIEN |
Third Respondent
REASONS FOR JUDGMENT
Section 55 of the Bankruptcy Act 1966[1] sets out in some detail the procedures to be followed when a debtor presents to the Official Receiver a petition against himself, known colloquially as a “debtor’s as petition”. The gravamen of the rule is that the Official Receiver must accept a properly submitted petition although he does have discretion under s.53AA to reject it if it appears from the information in the statement of affairs that if the debtor did not become bankrupt he would be likely to pay all his debts as specified in the statement of affairs and it appears that there is an unwillingness on the part of the debtor to pay his creditors in general or he is a serial bankrupt. None of these provisions apply in the instant case. The reason that the matter has come to this court is because of the requirement in s.55(3B) that:
“(3B) The Official Receiver must refer a debtor's petition to the Court for a direction to accept or reject it if there is a creditor's petition pending against a group of debtors (whether they are joint debtors or members of a partnership) that includes the debtor against whom the debtor's petition is presented.”
[1] “Act”
If the court directs the Official Receiver to accept the petition then under subsection 3C:
“(3C) … the Court must specify the time of the commencement of the bankruptcy that results from acceptance of the debtor's petition.”
Mr O’Brien is one of three joint obligors under a guarantee agreement and thus a person who prima facie falls within the provisions of s.55(3B). A judgment was obtained against him and his joint obligors on 23 September 2011 in the sum of $701,742.00 plus $30,325.00 interest. On 25 January 2012 a bankruptcy notice was issued and it was served on 1 February. On 22 February 2012 the debtor committed an act of bankruptcy by not complying with the bankruptcy notice. On 2 March 2012 the creditor presented a petition to this court against the three joint debtors which had as its return date 13 April 2012. The petition was served on 14 March. On 12 April, one day before the hearing of the debtor’s petition, the debtor Mr O’Brien, filed his own debtor’s petition and that has been referred to this court by the Official Receiver pursuant to the provisions of s.55(3D).
I have had the opportunity to hear from legal practitioners representing both the creditor and the debtor and to read the affidavit of Steven Wade Underwood, the solicitor for the debtor filed on 23 April. It seems that the real dispute between the parties is the identity of the trustee who might be appointed. Mr O’Brien, after the service of the bankruptcy notice, contacted a Mr Shaw, an insolvency practitioner, and signed the necessary papers pursuant to which on 29 February 2012 Mr Shaw became his controlling trustee under s.188 of the Act. Mr Shaw called a meeting of creditors in accordance with s.194 of the Act and put forward a proposal. That proposal was not accepted and it was for this reason that Mr O’Brien filed his own petition in which he sought that Mr Shaw be appointed his trustee.
The creditor on the other hand sought the appointment of a Mr Sutherland, another insolvency practitioner. Mr Sutherland is the trustee of one of the other joint debtors. The objection that Mr O’Brien has to the appointment of Mr Sutherland was that Mr Sutherland’s partner, Mr Moretti, is the liquidator appointed to a company which claims that Mr O’Brien owes it money. Mr O’Brien expresses through his solicitor a fear that there might be a conflict of interest if Mr Sutherland acts as trustee for both Mr Hill, one of the co-guarantors, and Mr O’Brien. This is explained in paragraph nine of the affidavit:
“Additionally, Mr O’Brien and Kenneth Michael Hill are co-guarantors of the loan from Greater Building Society and co-guarantors of the loan from Charlestown Consulting Pty Limited to Moylan Investment Group, as well as loans from Cimneth Pty Ltd from Moylan Investment Group. Cimneth Pty Ltd has just recently had a liquidator appointed by the Australian Tax Office. There is not presently any claim as between Hill and Mr O’Brien of which I am aware but it may be through each trustee’s investigations into the affairs of each of them that might warrant a claim (with leave of the court) against the other’s estate. If that situation arises it would seem reasonable to assume that there would be a conflict of interest if Mr Sutherland acts as trustee for both Mr Hill and Mr O’Brien.”
I have not been obliged to make any finding in regard to the possibility of this conflict because today I have been informed by Mr Smith, who appears on behalf of the applicants, that Mr Adam Shepard, another insolvency practitioner, has consented to act as trustee.
There is little assistance given to the court in terms of the authorities as to the considerations that it should adopt in deciding whether or not to order the Official Receiver to accept the petition, or to reject it. The Service notes that:
“If a debtor is particular and complies with the requirements of section 55(2) and is not the subject of a reference under section 55(3B) the debtor is entitled to be made a bankrupt.”
But that does not really illuminate the position very much. In Australian Cooperative Foods Limited v Leung [2006] FMCA 695 a matter was referred to this court for decision and Lloyd Jones FM, after going through the requirements for a properly made application under s.55 and confirming that the one before him was such a one, noted that the Official Receiver had not raised with the court any issue in respect of the debtor’s petition that may be considered as an abuse of the procedures of the Act; Official Receiver of the Bankruptcy District of Victoria v Walia (1997) 79 FCR 299 per Finkelstein J. His Honour declared himself satisfied that the relevant documents and procedural steps had been taken and that no objection had been raised by the Official Receiver or any other party. He therefore felt it was appropriate that the Official Receiver be directed to accept the petition. This case is different because there is an objection by the petitioning creditor who has, it would appear, a wish to appoint its own trustee.
If the debtor had not made his application on 12 April he would have been made bankrupt on the 13th pursuant to the creditor’s petitioner because it is not suggested that he is solvent. The intervening action of the debtor was aimed purely at avoiding the consequences of Mr Sutherland being made his trustee. Whilst I have my doubts that such an action could be construed as an abuse of the procedures of the Act it could appear to be an attempt to utilise the procedures for the benefit of a debtor. On the other hand, had Mr O’Brien not been one of joint debtors, the debtor’s petition would have been accepted by the Official Receiver and the only relief open to the creditor would be an application for costs such as that made in Re Elkateb; Lawindi v Elkateb [2001] 187 ALR 479 where a debtor filed a debtor’s petition one day before the hearing of the creditor’s petitioner. Stone J ordered that the costs of the proceeding up to and including that date be paid out of the respondent’s estate.
I take from the wording of s.55 and the views expressed by Stone J that a debtor’s petition does take what might loosely be described as a “priority” over an undetermined creditor’s petition. It would appear that the requirement to refer a debtor’s petition to the court where there are pending creditor’s petitions against a group of persons of whom this debtor is one, is to leave the discretion of the court unfettered, but perhaps with an eye on the possibility that the filing of the debtor’s petition is an abuse. It is not suggested that is this case and so I believe that the proper course of action is to direct the Official Receiver to accept the petition. However, I do not believe that the creditor should be put out of pocket as a result. I think that the creditor is entitled to its costs up unto to the date that the debtor’s petition was presented. I also think that the creditor is entitled to its costs of appearing before the court in relation to the reference because that is a requirement of the Act and it is reasonable that the creditor be represented at such a hearing.
In s.115 of the Act the commencement of the bankruptcy when a debtor’s petition has been presented is dealt with under s.115(2). There is a table set out. Under Part 2 of that table, where a petition is presented when at least one creditor’s petition was pending against the petitioning debtor (whether alone, as a member of a partnership, or as a joint debtor) and accepted by the Official Receiver without a direction from the court, the time to which the bankruptcy has relation back to the commencement of the bankruptcy is the time of the commission of the earliest act of bankruptcy on which any of the creditor’s petitions was based.
I do not read that part as excluding the situation where there has been a reference to the court because a petition cannot be accepted by the Official Receiver without a direction in those particular circumstances. It seems to me that paragraph 2 of the table was rather awkwardly intended to hint strongly to any Judge making a decision under s.55(3C) that this date should be utilised. That is what I propose to do because I do not believe that the debtor should be advantaged in any way by filing his own petition one day before the creditor’s petition was intended to be heard. The date of the commencement of the bankruptcy and the time to which the bankruptcy has relation back shall be 22 February 2012.
I certify that the preceding eleven (11) paragraphs are a true copy of the reasons for judgment of Raphael FM
Date: 23 May 2012
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